Indemnity Clauses in Canadian Commercial Contracts

An indemnity clause allocates specified loss between contracting parties. It may require one party to reimburse the other for a direct loss, a third-party claim or both. The obligation depends on the complete contract: the trigger, causal language, covered losses, exclusions, claim procedure, liability cap and insurance provisions. The word “indemnify” alone does not answer those questions. A direct-loss indemnity addresses loss between the parties, such as the cost of correcting a representation that proved false. A third-party indemnity responds when someone outside the contract makes a claim, such as an intellectual-property, injury or tax claim. Draft the categories deliberately. A clause written around a third-party “claim” may not clearly cover the indemnitee’s own first-party loss. Conversely, wording covering every loss “arising out of” the agreement may reach far beyond third-party litigation.