What is an indemnity clause in a contract?

An indemnity clause in a contract is a provision that requires one party to compensate the other for losses or damages that may arise from certain events. This type of clause is intended to protect one party from financial loss due to the actions or negligence of another party. Indemnity provisions are often included in contracts to allocate risk and ensure that the party that bears the risk will be compensated if a specific event leads to a financial loss.

For instance, in a construction contract, a contractor may indemnify the client against any claims or damages resulting from the contractor's work. Therefore, if a third party sues the client for damages caused by the contractor's actions, the contractor would be responsible for covering those costs, as stipulated in the indemnity clause.

The other options provided do not accurately define the purpose of an indemnity clause. A definition of the contract duration refers to the timeframe of the agreement, a general overview of contract obligations outlines the responsibilities of each party, and a type of non-compete agreement restricts one party from engaging in business with competitors. None of these relate to the concept of indemnifying or compensating for losses.