A contractual obligation where one party agrees to compensate the other for certain losses, claims, or damages arising from specified events.
Indemnification is a contractual promise where one party (the indemnitor) agrees to cover the losses, legal costs, or damages of the other party (the indemnitee) if specified events occur. Indemnification clauses appear in almost every commercial contract.
A typical example: a software company's service agreement might include an indemnification clause saying the company will defend the client against claims that the software infringes a third party's IP. If a patent troll sues the client claiming the software violates their patent, the software company is responsible for defending that claim. Conversely, the agreement might require the client to indemnify the software company if the client uses the software in an illegal way that results in claims against the vendor.
Indemnification clauses vary significantly in scope. "Broad" indemnification that covers anything the other party might face is very one-sided. "Mutual" indemnification where both parties indemnify each other is balanced but can create unexpected obligations. Understanding what you're agreeing to indemnify — and what scenarios that might create liability — is important before signing contracts with broad indemnification provisions.