What is an indemnity agreement and why are they used?

What does indemnity mean? Indemnity refers to one party’s duty to make good on any losses, damages or injuries another party may have incurred due to the first party’s actions.

Indemnity can refer to compensation or the right to compensation for the losses, damages or injuries incurred by one party due to the actions of another party. Additionally, it can also refer to an exemption from reimbursement if there is a contractual indemnity clause or agreement.

Indemnity agreements are used in a variety of business fields. Most commonly, they are used in construction; however, they can also be used in any business where an owner may want protection against employee lawsuits. Indemnity agreements are also commonly referred to as “hold harmless agreements”.

By signing an indemnity agreement, employees or members of the public are releasing the business from any liability in the event of an accident.

Many businesses use indemnity agreements to protect themselves in case an employee or customer gets into an accident on their grounds. For example, a water park may have people sign an indemnity agreement that releases the park from liability in the event that an accident occurs. Remember though, this does not release culpability in the event that the park is negligent! (Negligence means that a party did exercise reasonable prudent care when they acted and because of that, their actions caused another party harm). In the example of the water park, if a customer is injured due to poor maintenance of a water slide, then the water park may still liable for losses and damages.