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To indemnify another party is to compensate that party for losses that that party has incurred or will incur as related to a specified incident. 

Typical Indemnity Clause

This is an example of what a typical indemnification clause can look like: “Party A will perform work at own risk, and indemnifies Party B against all loss, damages, expense, and liability resulting from injury to property." In this example, Party A is agreeing that even if Party B would have been found liable for an action in court, Party B is not responsible for compensating Party A for any loss, damage, expense, or other liability relating to that action.  

Indemnity As Applied to Insurance Claims

A common example of indemnification happens with reagrd to insurance transactions. This often happens when an insurance company, as part of an individual's insurance policy, agrees to indemnify the insured person for losses that the insured person incurred as the result of accident or property damage. In this sort of agreement, party A would hire insurance company B. If party A and party C are involved in some sort of incident that results in property or personal damage (ex: a car accident), insurance company B would assume any liability for which Party A might be responsible. After that, insurance company B would typically sue party C to recover damages. 

See Hercules Inc. et al v. United States, 516 U.S. 417 (1996).