Lenders & Contracts · Insurance Term
Indemnity (Indemnification)
Definition
Indemnity is a promise to make someone whole for a loss. In contracts it means one party agrees to pay for certain losses or claims of the other. In insurance it is the basic idea that a policy restores you to where you were before a loss, not better.
In Plain English
The word shows up in two places. In insurance, the principle of indemnity means a policy pays the loss, not a profit. That is why coverage is limited to your actual loss and your insurable interest in the property.
In contracts, an indemnity clause makes one party, the indemnitor, responsible for certain losses of another, the indemnitee. Leases, property management agreements, vendor contracts and construction contracts commonly include one. It is often paired with a hold harmless agreement and a promise to defend claims, which can make the duty to defend part as valuable as the payment part.
An indemnity promise is only as good as the money behind it. Liability policies may cover certain indemnity promises through contractual liability coverage when the contract qualifies as an insured contract. Requiring the other party to carry insurance and name you as an additional insured backs up the promise.
Not sure how your policy handles this? Have us review it, or get a quote.
Example
Hypothetical: a lease requires a restaurant tenant to indemnify the landlord for claims arising from the tenant's operations. A customer is burned by spilled hot oil and sues both. Under the clause, the tenant and its insurer may be required to defend and pay for the landlord, subject to the contract and policy wording.
Why It Matters for Texas Property Owners
Texas courts generally enforce an agreement to cover the other party's own negligence only when it says so expressly and is conspicuous. In construction contracts, the Texas Anti-Indemnity Act (Insurance Code Chapter 151) voids many such provisions, with exceptions such as certain claims for injuries to the indemnitor's own employees. An attorney should review important indemnity clauses.
What to Watch For
- Check whether the clause includes a duty to defend, not just to pay.
- Look at whether the clause is limited to the other party's fault or reaches your own.
- Match each indemnity clause with an insurance requirement and proof of coverage.
- Ask your agent whether your policy would cover any indemnity you are giving.
Common Questions
What is the difference between indemnity and additional insured status?
Indemnity is a contract promise from the other party, and it depends on their ability to pay. Additional insured status gives you direct rights under their insurance policy. Many contracts require both.
Can I be asked to indemnify my tenant or vendor?
Yes, some contracts are mutual or run in your direction. Read carefully what you are promising and ask whether your liability policy would cover it.
Sources
Last updated October 14, 2026 · Primesure editorial team · How We Write