Indemnity Agreement
A contractual provision in which one party agrees to compensate another for specified losses, often the foundation of insurance risk transfer.
What It Is
An Indemnity Agreement is a contractual clause in which one party (the indemnitor) agrees to defend, hold harmless, and reimburse another party (the indemnitee) for losses arising from defined events. In commercial contracts, indemnity clauses commonly cover bodily injury, property damage, intellectual property infringement, and breach of contract.
Indemnity provisions are typically classified as broad form (indemnitor covers losses including those caused by the indemnitee's sole negligence), intermediate form (covers losses except those caused solely by the indemnitee), or limited form (covers only losses caused by the indemnitor). Many states have anti-indemnity statutes that void broad form indemnity in construction contracts.
Indemnity Agreements drive the insurance requirements that follow them, including additional insured status, primary and noncontributory wording, and waiver of subrogation.
Why It Matters for Brokers
Brokers do not draft indemnity language, but they must reconcile what the contract requires with what the policy actually delivers. A subcontract that demands broad form indemnity backed by primary and noncontributory CGL with completed operations coverage cannot be satisfied by a generic CG 20 10 endorsement alone. Misreading or ignoring the indemnity clause is a leading source of certificate disputes and contractual liability gaps. When the insured is sued and tenders to the upstream party, a misaligned indemnity clause and policy can leave the insured paying out of pocket.
Real-World Example
A specialty trade contractor signs a subcontract requiring it to indemnify the general contractor for all claims arising out of its work, including the GC's sole negligence. The trade's broker reviews the clause, identifies that the state has an anti-indemnity statute voiding broad form in construction, and confirms that the trade's CGL contractual liability coverage and CG 20 10 04 13 plus CG 20 37 04 13 endorsements respond to the enforceable portion. The broker documents the analysis and issues a compliant ACORD 25 with the appropriate descriptions.
Common Mistakes
- 1Issuing certificates that confirm contract compliance without reading the indemnity clause, which can create E&O exposure when the policy does not actually align with the obligation assumed.
- 2Overlooking state anti-indemnity statutes that void broad form indemnity in construction, oilfield, or transportation contracts, leading to unenforceable provisions and false comfort.
- 3Failing to flag contractual liability exclusions or sublimits in the CGL that could limit the insured's ability to honor the indemnity assumed.
- 4Not coordinating waiver of subrogation, primary and noncontributory, and additional insured endorsements to fully back the indemnity clause.
How brokerageaudit.com Handles This
Document Pipeline extracts indemnity, insurance, and additional insured provisions from uploaded contracts and routes them to Review Queue for broker validation. Policy Checker then maps each contractual requirement to the issued endorsements on the CGL, Auto, Umbrella, and Workers Compensation policies.