Indemnification is the obligation of one party to compensate another for specified losses, damages, or legal costs, most often created by a contract clause but sometimes arising under common-law or equitable indemnity between parties with no direct agreement. It differs from insurance, which is a regulated, premium-funded species of indemnity, and from contribution, which apportions liability among multiple parties who share fault rather than shifting the full loss to one indemnifying party.

A well-drafted indemnification clause separates the duty to indemnify, which is the obligation to actually pay losses once established, from the broader duty to defend, which is typically triggered simply by the allegations in a complaint regardless of whether they ultimately prove true. Parties negotiate scope carefully: whether indemnity is capped or uncapped, whether it covers the indemnitee's own negligence, and carve-outs for gross negligence or willful misconduct that no indemnitor will agree to cover. The process usually starts with a formal tender of defense, putting the indemnitor on notice and demanding it accept the obligation.

Indemnification disputes frequently get litigated on a separate track from the underlying claim, through a third-party complaint or cross-claim brought once the primary litigation is underway. A number of states restrict or void broad indemnification provisions by statute, particularly in construction contracts, where anti-indemnity statutes commonly bar a party from shifting liability for its own negligence onto a subcontractor or other counterparty.

Corporate and transactional counsel negotiate indemnification provisions as core risk-allocation tools in every commercial contract, while litigators use tender-of-defense demands and third-party claims to push defense costs and ultimate liability onto the contractually responsible party once a dispute actually arises.