Indemnity Agreement

Indemnity means protection granted against a loss. In legal terms, it means exemption from legal responsibility for one’s actions. Indemnity usually flows from one party to another. Any contract carries with itself some risk of loss due to any action of the other party. Any act or omission of one party which may be against the terms of an agreement can have negative consequences on the finances of the other party. This may be due to unintentional errors as well. However, it is the right of the aggrieved party to be indemnified against losses that arise due to acts of the other party. Such acts of indemnity are governed under the law of contract. If indemnity is granted in a contract, the terms and conditions must be specified explicitly. The purpose is to relieve the liabilities of a party under a contract if they have not breached the contract on their part.

What Is An Indemnity Agreement?

Section 124 of the Indian Contract Act,1872, defines a contract of indemnity as A contract by which 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.

An indemnity agreement is a legally enforceable document that grants immunity to a contracting party from the effects of actions of the other party. It is an agreement that prevents a party from shelling out resources for a fault which is not their own. It is effectively compensating any loss that arises to a party due to the negligence or fault of another party. The person who grants indemnity is known as an indemnitor and the person who receives it is called indemnitee.

The protection granted in an indemnity agreement may be of the nature of financial resources, performance of certain acts or provision of legal support in case any legal action is instituted against the indemnitee by a third party. In many cases, indemnity agreements are signed between businesses and customers in case the service involves considerable risk to the customer- for example in adventure sports, or in motor vehicle related services where there are risks of accidents.

What Are The Contents Of An Indemnity Agreement?

An Indemnity Agreement can include matters like:

Parties

Details of both parties including incorporation details, types of entities and address is given.

Service

The type of the service provided by one party to the other and the nature of their contractual relationship is given along with details of their primary contract. Each aspect of the service is described so that the need of indemnification is highlighted.

Intention

After mentioning the nature of the business contract, a brief point can be added which shows the intention of one party to indemnify the other with regards to the terms of the agreement.

Indemnification

It is the most important clause in an indemnification agreement. It can be quite complex and lengthy. For convenience, we are splitting the important parts as follows:

‘On performance of the contract’

The delivery of goods or services as per the contract is essential to give rise to indemnity.

‘Agents, employees, representatives’

Since a company is an artificial person in the eyes of law, natural persons who represent it are responsible for the actions and functioning of the company. An artificial entity is said to perform part of a contract when persons who control the entity performs that part.

‘Defend, indemnify and hold harmless’

The above words describe the scope and the complete nature of indemnity which is to be provided by the indemnitor.

Actual and alleged demands, claims, loss, damage, liability, causes of action

When a lawsuit is filed by against a party, it needs to be defended against irrespective of whether the claim is real or not. Hence, the word alleged is added.

Individual or other entity

Claims or other causes of action may be brought about by an individual or other entity like company, partnership, LLP, cooperative society, among others.

Court of Law, Tribunal, Central/State Governments, Local bodies and other governmental agencies

Such cause of action may be brought about by any of the agencies mentioned above. This is to give a broader scope to governmental actions which may be indemnified.

Acts, negligence, omission, willful misconduct  

Such actions must have occurred due to the negligence of the indemnitor or his legal representatives.

Penalties, fines, decrees, expenses, costs, attorney fees

The extent of the indemnity provided should be mentioned in detail with the above details

Risk

The agreement should make it clear as to which party takes responsibility for the risk. The risk may be either owned by one party entirely or split into different proportions. If there are more than one types of risks identified, they may be shared between the parties.

Negligence

Negligence is one of the few matters that needs to be addressed in an indemnity agreement. The agreement may say that the indemnitor shall indemnify the indemnitee against losses provided that such acts have arisen due to the negligence of the indemnitor. The contract usually mentions that the indemnity does not hold good for negligent acts of the indemnitee.  

LegalDesk.com Helps To Get You Indemnified!

Indemnity is like insurance. It is better to have it since one may need it anytime. When you enter into a business relationship with another party, it is important to make provisions for untoward circumstances in future.

It is good to be equipped with a legally sound indemnity agreement in order to mitigate potential losses that can affect your finances and peace of mind. Visit LegalDesk.com to choose between an array of documents for all your needs- business or personal. Our documents are meticulously drafted keeping your individual needs in mind. Choose LegalDesk.com for being equipped legally.