• By: Adam Wire
  • September 26, 2022
Reading Time: 5 minutes
Indemnity Agreement

Also called waivers of liability, indemnity agreements must be drafted carefully to ensure they offer the intended level of protection.

As part of every contractor agreement, a board of directors must include an indemnity agreement, which protects the board from risks or liabilities created by the partner. Read on to learn more about the major components of an effective indemnity agreement. 

Indemnity Definition

Indemnity is the duty of one party to cover losses, damages, or liability incurred by another. The term in business contracts may also mean an exemption from liability for losses or damages. 

An indemnity agreement is a legally binding contract that protects a party from risks in a business transaction. For example, most organizations use indemnity agreements to protect board directors from personal liability in case of financial or legal issues. 

The agreement prevents the following actions against a particular party in a business transaction: 

  • Claims
  • Lawsuits
  • Damages

How to Write an Indemnity Agreement

An indemnity agreement has two parties: 

  • Indemnitor: The party that holds another harmless in a contract
  • Indemnitee: The party that is protected by the indemnitor against liabilities

Writing an indemnity agreement depends on whether you are the indemnitee or the indemnitor. As the indemnitee, you want a deal that protects you against all legally enforceable liabilities. If you are the indemnitor, ensure the agreement holds you liable only for breach of contract and negligence acts. 

Use the following steps to write an effective indemnity agreement, which include all the significant components to make sure you draft a legally binding document. 

Consider the Indemnity Laws in Your Area

Indemnity laws define how much risk can be transferred between parties in a contract. You should consider this when identifying the state statutes to govern your indemnity agreement. 

However, indemnity laws and regulations vary by state. Some have anti-indemnity statutes, while others don’t. Check your state’s indemnity laws before you write the agreement. 

Draft the Indemnification Clause

The indemnification clause is the heart of an indemnity agreement. In this clause, you state the liabilities the indemnitee will be protected against. Ensure the wording is precise and only open to one interpretation (unambiguous), especially if your organization is the protected party in the agreement. Ambiguity in a contract is usually resolved in favor of the indemnitor. 

The clause should outline that the indemnifying party agrees to defend and hold the indemnitee harmless in particular circumstances. 

Outline the Indemnification Period and Scope of Coverage

How long will the agreement protect the indemnitee from claims and legal actions? To what extent will the indemnitor defend and hold harmless the indemnitee from liabilities? As the party providing liability protection in the agreement, ensure you only take on liabilities caused by your organization’s actions. 

State the Indemnification Exceptions

This section specifies conditions under which the indemnitor will not protect the indemnitee. These conditions vary depending on the agreement’s nature. However, most indemnity agreements outline that the indemnitee will not be indemnified if: 

  • The party knowingly commits a crime
  • The indemnitee acts unreasonably or in bad faith
  • The indemnified benefited from the risk that occurred 
  • The indemnitee gets fully compensated by other legal means

These are just a few examples of indemnification exceptions. Brainstorm others that are specific to your circumstances. 

Specify How the Indemnitee Notifies the Indemnitor About a Claim

An indemnity agreement should reveal how the indemnitee will notify the indemnitor of a dispute or claim covered under the legal document. That way, the indemnified party won’t be in the dark when facing losses, damages, or legal issues. You should also outline how the indemnitor defends the indemnified party against the claims, ensuring the agreement is comprehensive. 

Write the Settlement and Consent Clause

This clause outlines how both parties in an indemnity agreement get each other’s consent before settling a claim covered in the contract. The clause ensures the indemnitor doesn’t settle allegations in a way that imposes a penalty or limitation on the indemnified without written consent. It also ensures neither party unreasonably delays consent to the proposed settlement. 

Outline How to Enforce the Agreement

Your indemnity agreement should state how the indemnified party can enforce the contract if the indemnitor neglects its legal obligation. 

Easily Create and Manage Indemnity Agreements with OnBoard

Most construction, service, and commercial contracts use an indemnity agreement. For large companies, the paperwork can quickly amount to hundreds of agreements to manage. For an organization to successfully create and manage them, it needs powerful software that helps in the following ways: 

  • Create indemnity agreements faster
  • Analyze and discuss indemnity contracts more collaboratively with stakeholders
  • Store the indemnity documents in a secure, central location for easier management

OnBoard offers a robust software solution to simplify writing an indemnity agreement. Here’s how: 

Quickly draft indemnity agreements: OnBoard’s workflows help create indemnity agreement templates for different transactions, which you can reuse in the future. Not only will you save time, but you will also write agreements that comply with your organization’s standards. 

Collaborate seamlessly: Creating an accurate and comprehensive indemnity agreement requires effective discussions and collaboration among stakeholders. OnBoard provides a unified platform where different parties can meet. It’s packed with powerful features that enhance communication for a more streamlined and faster decision-making process. 

Store, manage, and distribute indemnity agreements in a unified platform: OnBoard provides a secure platform to keep indemnity agreements and access them anytime. Other documents and contracts you can store on our platform include: 

Request a free trial to see how OnBoard simplifies the tough stuff and supports you when writing an indemnity agreement. 

Frequently Asked Questions

  • What Is the Purpose of an Indemnity Agreement?

    The purpose of an indemnity agreement is to transfer liability from one party to another in a business transaction. Use it if the contracting party will be associated with acts that carry risk. 

  • Who Pays the Indemnity?

    The indemnitor pays the indemnitee for losses and damages covered under the indemnity agreement. 

  • Is an Indemnity Binding?

    An indemnity agreement is legally binding. The indemnitor holds the indemnitee blameless—not liable—for potential damages, losses, and legal issues. 

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About The Author

Adam Wire
Adam Wire
Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.