Which term best describes a contract in which one party agrees to indemnify the other for specific losses?

The correct answer is an indemnity contract. This type of contract specifically focuses on the concept of indemnification, which means that one party agrees to compensate or restore the other party for certain losses or damages incurred by that party. In essence, the indemnifying party is taking on the financial responsibility for specified risks, essentially providing a safety net for the other party against particular events that may lead to financial loss.

While an insurance policy may also provide a form of indemnification against certain risks, it is a broader term that encompasses various types of coverage and is regulated by specific insurance laws. An indemnity contract, however, is a specialized agreement that directly addresses the promise of one party to compensate the other.

Understanding the distinction between indemnity contracts and the other terms is vital, as each serves a particular purpose within the realm of risk management and financial protection. The liability agreement signifies general liability coverage rather than the specific arrangement of indemnification, while a coverage agreement could refer to the terms describing what is included in a broader insurance policy. This highlights the importance of terminology in understanding contractual obligations relating to indemnification and risk management strategies.