What is the essence of an indemnity clause in a contract?
The essence of an indemnity clause is to allocate risk from one of the contracting parties to the other. When an indemnification clause is inserted into a contract, it is meant to transfer risk between the contracted parties. The indemnification clause is used to make sure that a potential loss will be compensated. If a party is covered by this clause, it means that the other contractual party is promising to compensate that party if their actions cause loss. As such, it is safe to say that an indemnity clause states who bears the responsibility if losses occur due to one party’s negligence.
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