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Indemnity Agreement

Indemnity Agreement

In business, there’s always a risk of loss, but it shouldn’t fall on someone who didn’t cause it. That’s why we include an indemnity clause in our agreements. It means that if there’s any loss, the responsible party has to fix it or pay for it. It’s about making things fair and holding people accountable for what happens.

INDEMNITY AGREEMENT MEANS?

The term Indemnity is derived from the latin word “Indemnis” which means unhurt or free from losses. In general the indemnity is the contractual agreement which provides the specific compensation, damages to the loss occurred by another party. It typically secures a person from the financial liability. 

An indemnity agreement is a contract that protects the party or the company from the specific loss or risks from the damages of the other party in the particular transactions which they involved. This agreement which gave the guarantee the compensation availability in case of the damage occurred to the party. It helps to recover from the loss of the business. It is also called the no fault agreement or hold harmless agreement.

Example : If a person rents a car for the particular time period of 3 days. The car rental provider initially gets the signature form the person who rents the car, which is the indemnity agreement for the protection of the rental car if it meets any accident at the time the person who takes the car is responsible for the accident and he should be liable for the damages. 

If a particular building is being insured by an insurance company. If any accident happens for the building the insurance company will indemnify the loss or the damage occurred.

INDEMNITY AGREEMENT ALSO CALLED AS :

  • Hold harmless agreement
  • No fault agreement
  • Release of liability 
  • Waiver of liability

The following things are the other terms of the indemnity agreement.

PARTIES IN THE INDEMNITY AGREEMENT :

The Indemnity agreement involves two parties.

  • Indemnitor : The person who is the bearer of compensation for the damages or the losses which occurred to the buyer.
  • Indemnitee or indemnifier : The person who receives the compensation for the losses and damages by the buyer.

These are the necessary documents needed for the drafting of the security agreement.

Note : If you are the indemnitee or the indemnifier, before entering into a business you need the agreement which legally protects your company or the business. In case if you are the indemnitor you must know the limits and liabilities of the business if breach of contract happens by the indemnitee, the Indemnity agreement helps to claim for the loss or damage. 

TYPES OF THE INDEMNITY AGREEMENT :

There are two types of indemnity agreement. They are,

Express indemnity

In this written agreement between the two parties, when one party should accept the terms and conditions expressly indemnify or to protect others from the loss or damages which occurred. Eg : Indemnity contract, work contract, insurances, loan etc. 

Implied indemnity

In this type of indemnity, the obligation for the indemnity should arise not from the written agreement but based on the circumstances or by the law. Eg : The principal and agent relationship. That every act of the agent that the principal is liable. If the agent left the delivery of goods to the owner. The principal is responsible for every act of the agent. In this situation there is no indemnity agreement between the parties but it is bound by the circumstances or by the law. This type of indemnity is said to be the implied indemnity agreement.

NEED FOR THE INDEMNITY AGREEMENT

When the two parties are entering into a business relationship, there are a lot of risks bound in the business. So this agreement should protect the parties from the risk of financial and other damages which are bound by the party. So this indemnity agreement which helps him from the losses or the damages. It is necessary used for the following business those are,

  • Business contracts.
  • Real estate transactions.
  • Construction contracts.
  • Rentals and lease.
  • Event works and other activities.
  • High risk services.

For the following businesses the indemnity agreement is necessary.

EXAMINING CORRECT INDEMNITY CLAUSE :

Every indemnity agreement is generally enforceable in the contractual clause, but some courts are limited to enforce such clauses. If the damages or the loss happen unreasonably or by logically at the extreme. The both parties are claiming the same damage by unlogical circumstances. The question arises for who is liable to pay damages. In such situations the indemnity agreement has no legal enforceability over the damages incurred to both parties. So while drafting the indemnity agreement makes sure that to avoid these kinds of logical situations in the agreement.

THINGS WHICH INCLUDED IN THE INDEMNITY AGREEMENT

  • Name and the parties involved
  • Obligations of each party
  • Nature of the damages or the loss
  • Extent of coverages
  • Limitation and exception
  • Termination 

CONTENTS FOR DRAFTING OF THE INDEMNITY AGREEMENT :

For the validity of the indemnity agreement it should necessarily focus on the certain things,

1. Parties involved :

The indemnity agreement should mainly deal with the parties who are involved into the indemnity agreement. In this clause it is clearly mentioned who is an indemnitor and who is the indemnifier. All the relevant information of the both parties should be clearly mentioned. (Parties name, address and identifications, point of contract).

2. Laws and jurisdiction :

The Indemnity laws vary from each and every state, certain states having the specific state legislatures, which will govern the indemnify statutes clearly. So the correct jurisdiction and the state law should be considered before drafting the indemnity agreement. Also the agreement should state the court’s jurisdiction clearly. For every Indemnity agreement, the governing laws and the jurisdiction plays a major role in the determination and the validity of the agreement to be enforced.

3. Indemnification clause:

The indemnification clause is the important context of the agreement. In this clause it deals with the act of the party to perform as the indemnitor and the indemnifier. In this clause the person must ensure that the wordings, some of the legal words are unambiguous to the party and the party should know the information of the indemnification clause.  The clause which also contains essential legal provisions relating to the indemnity agreement. 

The Indemnitor should agree to the responsibility to indemnify, defend or to recover him from the loss. This information  should be clearly added in the indemnification clause mainly.

4. Scope of coverage :

The scope of coverage which mainly focuses on the extent of protection that the indemnitee should claim from the particular business or the transactions. Mainly the terms and conditions are enclosed in the agreement. This clause ensures the specific Coverages such as the indemnity cap which the agreement should not enforce if the minimum requirement is not considered by the party. Also covers the limitations of the agreement. The agreement should not contain any ambiguous words and languages which confuses the parties.

Note: This clause also covers what financial obligations shall fall onto the party after enforcement of the indemnity agreement. The obligation is different from the responsibilities.

5. Exceptions:

The agreement which specifies certain terms and conditions to outline some of the exceptions to the both parties who were involved in the business. The exceptions vary for every agreement based on nature. Those are,

  • Criminal offences or businesses
  • The party acted for bad intentions or faith
  • Personal benefits
  • Acted bad for receiving compensation under the insurance policy of the agreement.

The indemnitor is not responsible if the indemnitee should cause his own damage and act for the profit or the compensation from another party.

6. Notice and defence claim:

Every indemnity agreement should contain how the indemnitee should give the notice and claim, when any dispute arises between them. It should also give a brief detailed steps for the indemnitor to defend from the claims. 

7. Settlement and Consent clause:

The settlement clause which deals with the procedures for the setting a claim if the dispute arises between them. This helps that any party act beyond the agreement the other party should claim compensation for the act.

For the validity or the enforcement of the indemnity agreement the both parties must give their consents to their agreement. Before signing the agreement for giving consent, both parties should be clear about their responsibilities and their obligations in the agreement. 

8. Arbitration clause:

In this clause the agreement should specify the procedures of dispute resolution if in case the party involves the breach of agreement. If the agreement was not disclosing the contractual law or the particular jurisdiction. The other source of dispute resolution should be clearly mentioned in the indemnity agreement. eg: Arbitration, negotiation etc.

9. Duration or termination clause:

The indemnity agreement should specify the duration of the limit of the agreement to be enforced or to be in effect. The clear time and period and validity of the agreement should be clearly understanded by both parties.

These are the essential elements for the drafting of the indemnity agreement. Every agreement should contain these clauses for the legal enforcement of the agreement. 

Advantages of an indemnity agreement :

There are certain advantages of the indemnity agreement are,
  • Protection from loss : It safeguards the person from the loss or the damages and it helps to recover the business by getting the compensation from the buyer or the beneficiary.
  • Coherence to the party : The indemnity agreement which provides the clear overview about the business, responsibility, obligations, terms and conditions, durations which act as security for the parties.
  • Legal compliance: The indemnity agreement which is legally binded by the provisions of the contract law, which helps the person or the business as a protection.
  • Act as evidence : This agreement which acts as evidence to the court which helps to prove the claims and recover the damages for the breach which were caused by the other party legally. This agreement helps to sue in the court for the legal claims.

LIMITATIONS OF INDEMNITY AGREEMENT :

  • Not applicable for illegal acts : The indemnity agreement should not be enforceable if the purpose of the business is illegal or not accepted by law. The parties can not use it as a shield for those activities. Eg : If the two parties are jointly involved in the cocaine business or any other smuggling business, the agreement should not support the activity.
  • Indemnity cap :  The agreement which provides that the indemnitor is only liable for the loss if the amount does not exceed X amount, which is mentioned in the conditions of the agreement. In such cases the indemnitor is not liable for the loss or the damages suffered by the other party.

IS INDEMNITY AND GUARANTEE IS SAME ?

Although the indemnity and the guarantee are similar but technically it is different. Basically the intention is to secure the protection of the party. Mainly the indemnity which is aimed to provide the financial protections against the potential lawsuits or from the damages caused by the other party. But In contrast the concept of guarantee is more different from indemnity. It ensures contractual performance. The guarantee is provided by the third party in the contract. 

FAQ

FAQ ON INDEMNITY AGREEMENT:

WHAT IS INDEMNITY MEANS ?

The term Indemnity is derived from the latin word “Indemnis” which means unhurt or free from losses.

WHAT ARE THE BASIC THINGS WHICH INCLUDED IN THE INDEMNITY AGREEMENT ?
  • Name and the parties involved
  • Obligations of each party
  • Nature of the damages or the loss
  • Extent of coverages
  • Limitation and exception
  • Termination
WHAT ARE THE INVOLVED IN THE INDEMNITY AGREEMENT?

The Indemnity agreement involves two parties.

  • Indemnitor : The person who is the bearer of compensation for the damages or the losses which occurred to the buyer.
  • Indemnitee or indemnifier : The person who receives the compensation for the losses and damages by the buyer.
WHY FOR THE INDEMNITY AGREEMENT NEEDED ?

The indemnity agreement which helps him from the losses or the damages. It is necessary used for the following business those are,

  • Business contracts.
  • Real estate transactions.
  • Construction contracts.
  • Rentals and lease.
  • Event works and other activities.
  • High risk services.

For the following businesses the indemnity agreement is necessary.

WHAT IS MEANT BY INDEMNITY AGREEMENT ?

An indemnity agreement is a contract that protects the party or the company from the specific loss or risks from the damages of the other party in the particular transactions which they involved. This agreement which gave the guarantee the compensation availability in case of the damage occurred to the party. It helps to recover from the loss of the business. It is also called the no fault agreement or hold harmless agreement.

INDEMNITY AGREEMENT
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