What is an 'indemnity clause'?

An indemnity clause is indeed a provision that requires one party to compensate another for losses or damages that may occur under the contract. This type of clause serves to allocate risk between the contracting parties. Essentially, it provides protection to the party that may face loss, liability, or damage as a result of actions or events that are specified within the clause.

For example, in a construction contract, an indemnity clause may stipulate that the contractor must compensate the client for any damages arising from the contractor’s negligence in their work. This not only helps to safeguard the financial interests of the client but also encourages the contractor to exercise a high level of care in their execution of work.

In contrast, other options do not accurately define an indemnity clause. The clause regarding contract termination addresses the circumstances under which the contract can be ended, while a statement of contract terms or a clause outlining the duration of the contract focuses on the structure or timeline of the agreement itself, rather than compensation for losses. Therefore, option B captures the essence of what an indemnity clause is designed to achieve within a contractual framework.