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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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Margarita
8 hours ago
Wait, isn't it more about transferring risk?
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Georgeanna
6 days ago
Totally agree, option A is spot on!
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Minna
11 days ago
It's mainly about assigning risk to each party.
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Anglea
16 days 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
2 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
2 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
2 months ago
I think the indemnity clause is mainly about assigning risk, so I might lean towards option A.
upvoted 0 times
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