Contracts of Indemnity

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HomeBrud.gifContract LawBrud.gifContracts of Indemnity

Contents

Definition

The Contracts of Indemnity has been defined as: "A Contract whereby one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person, is called a contract of indemnity."

The term is often used in business contracts and in insurance.

Indemnity, in simple words, is protection against future loss.

The term 'Indemnity Agreement' is often used in the US.

The person who promises to save the other is called the Indemnitor or Indemnifier and the person who is compensated is the Indemnitee, Indemnified or the indemnity-holder. An indemnity can be defined as a sum paid by A to B by way of compensation for a particular loss suffered by B. A, the indemnitor may or may not be responsible for the loss suffered by the B, the indemnitee. Forms of indemnity include cash payments, repairs, replacement, and reinstatement.

Contract of Indemnties should all satisfy the conditions of a valid contract.

All Contracts of Insurance are Contracts of Indemnity except life insurance.

Rights

Rights of Indemnified or Indemnity Holder

  • all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;
  • all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suit;
  • all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit.

The indemnity holder can call upon the indemnifier to save him from loss even before the actual loss is incurred.

Rights of Indemnifier

  • After compensating the indemnity holder, indemnifier is entitled to all the ways and means by which the indemnifier might have protected himself from the loss.

Relevant Case Laws

Statute / Legislation related to Contract of Indemnity

  • India: Section 124 of Indian Contract Act, 1872 defines Contract of indemnity.
  • India: Section 125 of Indian Contract Act, 1872 specifies the Rights of indemnity-holder when sued
  • UK: China Indemnity (Application) Act 1931
  • US: UCC 440.7601: Lost, stolen or destroyed documents of title; delivery of goods, indemnity.
  • US: UCC 440.7601.amended: Lost, stolen, or destroyed documents of title; delivery of goods or issuance of substitute document; indemnity

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