What Is Indemnity?

Indemnity is a broad type of insurance that compensates for damages or losses. When used in a legal context, the term indemnity can also refer to a waiver of obligation for damages.
A contract of indemnity is a legal arrangement between two parties. In this agreement, one party undertakes to compensate the other for any possible losses or damages. An insurance contract, for example, is one in which the insurer or Indemnitor agrees to reimburse the other (the insured or indemnitee) for any damages or losses in exchange for premiums paid to the insurer. The insurer indemnifies the policyholder by promising to make the individual or business whole in the event of a covered loss.

Indemnity Terms & Conditions can be very complex, but the software example is a good explanation.

Consider the position of an industrial company that manufactures a product and wishes to add capacity. They hire a Construction firm who uses specialty subcontractors.

Each may offer some indemnification to the other party but each will certainly seek to be fully indemnified for any incident, so the clauses become complex. If someone gets hurt or property is damaged the actual fault can be hard to determine and is usually arguable; thus each party wants to be indemnified (escape any liability)

One example of complexity the use of the word “sole” in the indemnity clause, as in “"we won’t pay for anything unless it is our sole fault”. It can be argued that another party is slightly at fault for being there when a piano is dropped on them.