“Indemnification” or “Indemnity”?

Today I saw this tweet:

I was pleased to receive that endorsement from Casey—he has been the most astute observer of my stuff. (See his 2018 blog post and his 2016 blog post.) But I thought I ought to say something more, so here goes.

For what it’s worth, here’s what Black’s Law Dictionary says indemnity means:

1. A duty to make good any loss, damage, or liability incurred by another. 2. The right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty. 3. Reimbursement or compensation for loss, damage, or liability in tort; esp., the right of a party who is secondarily liable to recover from the party who is primarily liable for reimbursement of expenditures paid to a third party for injuries resulting from a violation of a common-law duty.

And here’s the Black’s Law Dictionary definition of indemnification:

1. The action of compensating for loss or damage sustained. 2. The compensation so made.

In terms of the frequency with which those terms occur in contracts, here’s how many contracts filed on EDGAR in the past 30 days feature one or the other or both words:

  • indemnification, 4139 contracts
  • indemnity, 3600 contacts
  • indemnification and indemnity, 2820 contracts

So indemnity is more prevalent than I would have expected. (Many contracts on EDGAR were drafted outside the United States, so EDGAR doesn’t reflect only US usage.) I suspect that indemnity is more popular in England than it is in the US, but my only evidence for that is that I can only recall English people using it.

Of course, it’s pointless to consider the relative frequency of either word versus the other—they’re different parts of speech and serve different functions.

So much for the raw evidence. Here’s what I recommend:

  • use the verb indemnify to create the obligation
  • use indemnification to refer to the process
  • use indemnification for headings
  • use indemnification provision (or section or article) to refer to that part of the contract.

Here are my reasons, none of them slam-dunk:

First, in general discussion I rarely encounter indemnity, so it sounds foppish to me.

Second, indemnity is too similar to indemnitee, meaning one who is entitled to be indemnified. (I don’t like that word either.)

Third, indemnity means a right, an obligation, and the concept generally? It’s too squishy.

Fourth, why single out some provisions as worthy of being referred to by using a noun? (Another such noun is warranty, which I mostly steer clear of for reasons explained in MSCD.)

Fifth, indemnification is a term of art (an arguably unnecessary one—see Kyle’s comment), but from the perspective of clients, indemnity is one notch more obscure.

And sixth, we don’t need it. If we can shrink the contracts lexicon by one word, so much the better.

 

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.