Does my indemnity payout get reduced by whatever I already recovered from insurance?

Usually yes, if the purchase agreement includes the kind of anti-double-recovery language that most Ontario agreements do. It is common to require that a buyer's indemnifiable loss be calculated net of any amounts the buyer has actually recovered from a third-party insurer for the same underlying loss, so the buyer is made whole for what actually happened without being paid twice for the same harm, once by the insurer and again by the seller through the indemnity.

Exactly how this works depends on the specific wording used, including whether the seller can require the buyer to first pursue available insurance before making an indemnity claim, whether the seller reimburses the buyer for costs of pursuing that insurance claim, and how timing differences are handled if insurance proceeds arrive after the indemnity has already been paid. Because this interacts with the buyer's own insurance program and the specific loss involved, a buyer who has both an active insurance claim and a potential indemnity claim for the same event should coordinate the two carefully rather than assuming they simply add together.