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CIPS L5M2 Exam - Topic 3 Question 70 Discussion

What is the purpose of an indemnity clause within a contract?
C) to transfer risk from one party to another
A) to assign risk to each party
B) to ensure both parties are adequately insured if something were to go wrong
D) to explain what would happen in the case of a force majeure

CIPS L5M2 Exam - Topic 3 Question 70 Discussion

Actual exam question for CIPS's L5M2 exam
Question #: 70
Topic #: 3
[All L5M2 Questions]

What is the purpose of an indemnity clause within a contract?

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Suggested Answer: C

Indemnity clauses transfer risk from one party to another. It is an arrangement whereby one party promises to compensate the other party for a trigger event. An example of an indemnity clause could be a construction firm is building a new bridge and the project is supposed to be completed by 1st June. An indemnity clause may state that should the bridge not be ready by this date, the construction firm will compensate the buyer by X amount. See p.61 for more information on indemnity.


by Theola at May 03, 2026, 03:12 PM

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Brice
4 days ago
Definitely A. It’s crucial for contract clarity.
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Dean
9 days ago
I like A and C together. They both capture the essence.
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Tasia
14 days ago
D is interesting, but not the main purpose.
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Shawnna
19 days ago
I lean towards C. It’s about shifting liability, right?
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Katina
25 days ago
True, but I feel like B is important for insurance coverage.
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Carolynn
30 days ago
But isn't it also about transferring risk? Option C seems valid too.
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Patria
1 month ago
I agree, option A makes sense. It clarifies who bears the risk.
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Lourdes
1 month ago
I think the indemnity clause is mainly about risk assignment.
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Susana
2 months ago
Surprised there's so much to it!
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Lamonica
2 months ago
I thought it was just for insurance purposes, like option B.
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Margarita
2 months ago
Wait, isn't it more about transferring risk?
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Georgeanna
2 months ago
Totally agree, option A is spot on!
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Minna
2 months ago
It's mainly about assigning risk to each party.
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Anglea
2 months ago
I recall a practice question that mentioned indemnity clauses in the context of liability, which makes me think it’s definitely related to risk transfer, so C seems plausible.
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Mignon
4 months ago
I’m not entirely sure, but I feel like indemnity clauses are more about protecting against losses rather than just insurance, so maybe it’s not B.
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Felicitas
4 months ago
I remember discussing how indemnity clauses can transfer risk, which makes me think option C could be correct too.
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Latrice
4 months ago
I think the indemnity clause is mainly about assigning risk, so I might lean towards option A.
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