# Indemnity

Source: https://contracko.com/glossary/indemnity

# Indemnity

A contractual promise to compensate another party for specified losses or third-party claims.

## Definition

An indemnity is an undertaking by one party to bear or reimburse defined losses suffered by the other, often arising from third-party claims such as IP infringement or data breaches. Unlike ordinary damages, an indemnity can shift risk directly and may cover losses that would not otherwise be recoverable under general damages rules. Dutch law has no dedicated indemnity statute, so the scope is governed by what the parties expressly agree, read against reasonableness and fairness.

## Example

> A software vendor indemnifies its customer against claims that the licensed product infringes a third party's patent.

## Why this is a business risk

An indemnity can be one of the most financially significant clauses in a contract, yet it is often buried in boilerplate. If scope is unclear, a dispute about whether a loss is covered can cost more than the loss itself. Businesses that grant overly broad indemnities, or fail to cap them, can face open-ended exposure from third-party claims they never anticipated.

## How to manage it

- Define the covered events precisely: vague language such as "any claim" creates much wider exposure than intended.
- Always cap the indemnity (or link it to your liability cap) so potential exposure is known and insurable.
- Require the indemnified party to notify you promptly and let you control the defence of any third-party claim.
- Check whether your professional indemnity or product-liability insurance covers the indemnity you are giving.

### How Contracko helps

Contracko's AI review extracts indemnity clauses and flags their scope, caps, and carve-outs so you can compare them across contracts at a glance. Obligation tracking ensures that notice and cooperation duties under an indemnity are not missed when a third-party claim actually lands.

## Legal references

- [BW 6:74 Dutch Civil Code: liability for damages Dutch law](https://wetten.overheid.nl/BWBR0005289)

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.

## Relevant for

[Software & SaaS](https://contracko.com/industries/software-saas)[IT Services](https://contracko.com/industries/it-services)[Insurance](https://contracko.com/industries/insurance)

## Related clauses

- [Indemnification Clause](https://contracko.com/clause-library/indemnification)
- [Limitation of Liability Clause](https://contracko.com/clause-library/limitation-of-liability)
- [Intellectual Property Clause](https://contracko.com/clause-library/intellectual-property)

## Related terms

- [Liability](https://contracko.com/glossary/liability)
- [Warranty](https://contracko.com/glossary/warranty)
- [Breach of contract](https://contracko.com/glossary/breach-of-contract)
- [Intellectual property](https://contracko.com/glossary/intellectual-property)

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## Frequently asked questions

Common questions about this term.

- **Q:** How does an indemnity differ from a warranty?
  **A:** A warranty is a factual assurance whose breach triggers a damages claim; an indemnity is a direct promise to pay defined losses, often without needing to prove breach or causation in the usual way.

- **Q:** Can an indemnity cover losses that exceed normal damages?
  **A:** Yes. An indemnity can be drafted to cover losses that would be too remote to recover as ordinary damages, which is exactly why its scope needs to be negotiated carefully.

- **Q:** Does Dutch law treat indemnities differently from damages clauses?
  **A:** Dutch law has no dedicated indemnity statute, so an indemnity is interpreted as a contractual obligation under general BW rules. Courts look at the agreed wording and apply reasonableness and fairness to resolve ambiguity.

- **Q:** Should an indemnity be mutual or one-sided?
  **A:** It depends on the risk profile. IP-infringement indemnities in software contracts are typically one-sided (vendor to customer); M&A deals often have mutual indemnities for specific warranty breaches.

- **Q:** What is a "tax indemnity" in an acquisition context?
  **A:** A tax indemnity obliges the seller to compensate the buyer for tax liabilities that arose before closing but were not accounted for in the price. It is separate from general warranty coverage and often has its own cap and time limit.

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