In Fidelity or Surety Bonds, what does 'indemnity' refer to?

Indemnity in the context of Fidelity or Surety Bonds refers to the commitment to protect both the principal (the party whose performance is guaranteed) and the obligee (the party that requires the bond). This protection is crucial because the indemnity clause ensures that if the principal fails to fulfill their obligations, the surety company will cover the losses incurred by the obligee. The essence of indemnity lies in reassuring the obligee that they will be compensated for the financial impact of the principal's failure to perform as agreed, thereby reinforcing trust and enabling business transactions. This dual commitment highlights the role of the surety not just in backing the principal but also in safeguarding the interests of the obligee.