Indemnity is a contract promise to cover specified losses, claims, or costs another party incurs, subject to the clause and applicable law.
Definition
An indemnity clause allocates certain financial consequences between parties. In an engineering agreement, it may address claims or losses connected with a party’s acts, omissions, or specified project risks. The wording determines what is covered, whose conduct matters, whether defense costs are included, and how the obligation interacts with insurance and other contract terms. Firms may encounter clauses that differ in scope, triggers, procedures, and limits, so the label alone does not establish the obligation. Indemnity is not automatically the same as insurance, and it does not mean every loss will be covered by a policy. It is also distinct from a duty to defend, although a contract may address both. Owners commonly review indemnity alongside liability limits, insurance requirements, and the services being performed. The Federal Acquisition Regulation’s cost principles provide a federal contracting reference, but a particular indemnity clause depends on its contract and governing law.
How owners use it
- Owners review which claims and losses a proposed clause covers, whose conduct triggers it, and whether defense costs are addressed.
- A firm compares a clause limited to losses caused by its negligent services with one that assigns it responsibility for all project claims.
- Contract review tracks indemnity together with liability caps, insurance obligations, defense wording, and scope of services.
- When evaluating a contract, the owner notes that policy coverage and contractual indemnity are separate questions.
