An indemnity shifts a defined risk from one party to another: A agrees to cover B’s losses arising from specified events. The clauses are long, negotiated late, and frequently misread.
Points that decide their effect:
Scope of triggering events. Third-party claims only, or also direct claims between the parties? Many indemnities are drafted for third-party claims and are then invoked, unsuccessfully, in a dispute between the signatories.
Defence obligations. A duty to defend is broader than a duty to indemnify and arises earlier — often on the allegation rather than the outcome — and it includes control of counsel, which parties fight over.
Caps, baskets and survival. Whether liability is capped, whether small claims must accumulate before any is payable, and how long the obligation lasts after closing.
Fees. Whether the indemnity covers attorneys’ fees, which in a jurisdiction following the American rule is often the most valuable part of it.
Negligence. Whether the indemnity covers the indemnified party’s own negligence. Many states require that to be stated in clear and specific terms, and a general clause will not achieve it.