What is indemnity?
Indemnity is a promise by one person to protect another from a loss or legal cost, usually by paying it for them. California law defines it as a contract to save another from the legal consequence of someone’s conduct. In injury settlements, the clause often makes you cover unpaid medical liens.
Last checked November 9, 2026 · Official sources (4)
What does an indemnity clause do in a settlement? An example
Example: you settle a crash claim for $20,000. The other driver’s insurer asks you to sign a release promising no more claims for the accident, and the release also says you will indemnify the insurer and its driver against any medical liens. You do not know that the ambulance company filed a $3,000 lien.
Months later, the ambulance company demands $3,000 from the insurer. Because of your indemnity promise, the insurer can turn to you for the $3,000. Depending on the wording and the state, you may also owe its legal costs: under California’s rules, an indemnity against claims or liability embraces the costs of defense. A $3,000 lien can become a much bigger bill.
Why does indemnity matter to someone who was hurt?
Indemnity language turns someone else’s risk into yours. Before signing a release, list every provider, health plan and government program that paid for your care, and confirm in writing what each is owed. Then the indemnity promise covers known amounts, not surprises.
- Read the release for the words indemnify, defend and hold harmless.
- Ask that liens be paid directly out of the settlement.
- Keep proof that each lien was paid or released.
What else does indemnity mean in insurance?
Insurance itself rests on indemnity. NAIC’s glossary describes the principle of indemnity as restoring the person who recovers under a policy to approximately the financial position they were in before the loss. That is why insurers pay for the value of what you lost, not more. Workers’ compensation also uses “indemnity” to mean wage-loss benefits, as opposed to medical benefits.
Indemnity vs. hold harmless
The two often appear together as “indemnify and hold harmless.” Indemnity is the promise to pay for a loss. Hold harmless is usually read as a promise not to hold the other side responsible, though courts in different states read the pair differently. Either way, the effect is the same: if a claim shows up later, it is your problem.
Questions
Should I sign a settlement release with an indemnity clause?
Many releases include one. Read it, confirm all liens first, and ask the insurer to limit the clause to liens you know about. People commonly have a lawyer review releases.
Is indemnity the same as compensation?
Close, but not the same. Compensation is money for your loss; indemnity is a promise to cover a loss or cost, often someone else’s.
What does indemnify mean in plain words?
To cover someone else’s loss or legal costs so they do not have to pay.
Find out if you are owed money.
A free case review. $0 upfront. No fee unless you win.
See if I’m owed moneySources (4)
- Cal. Civ. Code § 2772, checked 2026-11-09. “Indemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties, or of some other person.”
- Cal. Civ. Code § 2778, checked 2026-11-09. “An indemnity against claims, or demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith”
- NAIC Glossary of Insurance Terms, checked 2026-11-09. “Indemnity, Principle of - a general legal principle related to insurance that holds that the individual recovering under an insurance policy should be restored to the approximate financial position he or she was in prior to the loss.”
- Texas Department of Insurance, checked 2026-11-09. “The company will also ask you to sign a release promising that you won’t file more claims for the accident.”