Does an indemnity clause cover lawsuits from third parties, or just losses I suffer directly?

A well-drafted indemnity clause in an Ontario purchase agreement typically covers both, but treats them somewhat differently in how a claim is actually made. A "direct claim" is a loss the buyer suffers on its own account, without any outside party being involved, such as discovering an undisclosed liability that directly reduces the value of what was purchased. A "third-party claim" arises when someone outside the deal, such as a customer, employee, or regulator, brings a claim or proceeding against the buyer or the target business over something that relates back to the pre-closing period.

Purchase agreements usually set out separate procedures for each: direct claims typically just require notice and support for the loss, while third-party claims usually include additional mechanics covering who controls the defence, whether the seller can assume it, and what happens with any settlement, since the seller's money may ultimately be at stake in how that third-party dispute is resolved. A buyer should confirm that both the definition of indemnifiable losses and the claims procedure in the agreement actually address third-party claims, not just direct ones, since an incomplete clause can leave a real gap.