Indemnity

Indemnity is a legal promise to protect someone from financial loss. In home improvement work, it means the contractor agrees to reimburse the homeowner if the contractor’s actions—or failures—cause damage, misuse of funds, or other costs.

When used in place of an escrow account, an indemnity agreement makes the contractor personally responsible for ensuring the homeowner’s payments are either properly used for the job or fully returned. It shifts the financial risk onto the contractor and guarantees the homeowner won’t be left holding the bag if something goes wrong.