What does an indemnification clause generally protect against?

An indemnification clause primarily serves to protect against liabilities arising from third-party claims. This means that if a third party takes legal action against one party involved in the contract—potentially leading to financial repercussions—the indemnification clause obligates the other party to cover those losses. This can include legal fees, damages, and any other associated costs that may stem from that third-party claim. The goal is to shift certain risks away from one party to another, ensuring that they are not left bearing the financial burden due to the actions of an external party. This understanding is essential in contract management and formulation, as it helps parties mitigate risks related to unforeseen claims.