Indemnity
Indemnity is a contractual obligation of one party to compensate the loss occurred to the other party due to the act of the indemnitor or any other party. The duty to indemnify is usually, but not always, coextensive with the contractual duty to "hold harmless" or "save harmless". In contrast, a guarantee is an obligation of one party assuring the other party that guarantor will perform the promise of t…
What does it mean to be indemnified?
Indemnification means one party agrees to pay losses incurred by another to a third party.
What does it mean to indemnify?
What Is Indemnity? Indemnification is the assurance that one party to a contact will make the other party whole for any liability, damage, or loss incurred by another. Simply put, indemnify means to insulate another party from loss or damages. No matter what kind of indemnification clause is created, great care should be taken in its drafting.
What does agree to indemnify mean?
What does it mean to agree to indemnify? Indemnity Indemnity is a contractual agreement between two parties. In this arrangement, one party agrees to pay for potential losses or damages caused by another party. With indemnity, the insurer indemnifies the policyholder—that is, promises to make whole the individual or business for any covered loss.
How to indemnify someone?
- Narrow the scope of your liability to the extent of your control. ...
- Limit the indemnity to only protect specific scenarios. ...
- Restricting damages to out-of-pocket expenses paid to third parties. ...
- Eliminate indirect or consequential damages. ...
- Offer to pay expenses only after a court officially determines the situation as your fault. ...
What is the purpose of indemnity?
“To indemnify” means to compensate someone for his/her harm or loss. In most contracts, an indemnification clause serves to compensate a party for harm or loss arising in connection with the other party's actions or failure to act. The intent is to shift liability away from one party, and on to the indemnifying party.
What is the best definition of indemnification?
What does indemnification mean? Indemnification is the act of providing protection or security against potential damages or loss or compensating someone for damages or money spent.
What is an example of indemnification clause?
Example 1: A service provider asking their customer to indemnify them to protect against misuse of their work product. Example 2: A rental car company, as the rightful owner of the car, having their customer indemnify them from any damage caused by the customer during the course of the retnal.
What is an example of indemnity?
The most common example of indemnity in the financial sense is an insurance contract. For instance, in the case of home insurance, homeowners pay insurance to an insurance company in return for the homeowners being indemnified if the worst were to happen.
Does indemnification mean you can't sue?
Thus, indemnification clauses or indemnification provisions are very powerful agreements, because one party basically surrenders their legal right to sue the other party. Most indemnification clauses will only apply one way- that is, only one party gives up their right to sue the other.
Does hold harmless mean indemnify?
The prevailing interpretation is that “hold harmless” and “indemnify” are synonymous. However, under the minority view, “hold harmless” requires payment of both actual losses and potential liabilities, while “indemnify” protects against incurred losses only.
What are the three 3 methods of indemnity?
There are three levels of indemnification – broad, intermediate and limited form:Broad Form Indemnity. ... Intermediate Form Indemnity. ... Limited Form Indemnity. ... Validity of Indemnity Provisions. ... State-by-State Case. ... Operations in Multiple States. ... Insurance Considerations.
What is the difference between liability and indemnification?
Indemnification usually transfers risk between the parties to the contract. Limitation of liability prevents or limits the transfer of risk between the parties. With those basic concepts in mind, think about the risks that arise out or relate to the contract.
Do you need an indemnification?
Reasons to Consider Indemnifying: Without the clause, the contract may put one or both parties at a higher risk of liability. Providing reasonable protection from risk is essential to clinching the deal. The indemnity clause is industry standard and a part of your standard contract.
Is an indemnity legally binding?
Indemnification provisions are generally enforceable. There are certain exceptions however. Indemnifications that require a party to indemnify another party for any claim irrespective of fault ('broad form' or 'no fault' indemnities) generally have been found to violate public policy.
What are the types of indemnity?
Types of IndemnityBroad Indemnification. The Promisor promises to indemnify the Promisee against the negligence of all parties, including third parties, even if the third party is solely at fault.Intermediate Indemnification. ... Limited Indemnification.
What does an indemnity policy cover?
An indemnity insurance policy covers a legal defect with the property that either can't be resolved or would be very costly and/or time consuming to do so. So, instead of trying to fix the problem, you simply take out the insurance to protect you against an expensive bill in the future.
What is another term for indemnify?
Some common synonyms of indemnify are compensate, pay, recompense, reimburse, remunerate, repay, and satisfy. While all these words mean "to give money or its equivalent in return for something," indemnify implies making good a loss suffered through accident, disaster, warfare.
How do you use indemnification in a sentence?
Examples of 'indemnification' in a sentence indemnificationThe defendant raised four defences to the claim for indemnification.This reparation may also take the form of restitution, indemnification or rehabilitation.More items...
Do you need an indemnification?
Reasons to Consider Indemnifying: Without the clause, the contract may put one or both parties at a higher risk of liability. Providing reasonable protection from risk is essential to clinching the deal. The indemnity clause is industry standard and a part of your standard contract.
What is indemnification provision?
An indemnification provision is one of the most common and frequently used provisions when negotiating any type of contract, and yet the parties to a contract often don’t understand the meaning. Indemnity is defined by Black’s Law Dictionary as “a duty to make good any loss, damage, or liability incurred by another.”.
What happens when indemnification is triggered?
When an indemnification provision is triggered, one party pays the expenses, judgments, settlements, attorney fees, costs, and penalties of the other party.
What are some examples of indemnity?
One of the best examples of indemnity can be found in the context of insurance, where an insurance company insures a homeowner from damage to their home— the insurer indemnifies the homeowner .
What is indemnification in business?
Indemnification: What is it? Indemnification means one party agrees to pay losses incurred by another to a third party. For example, if you were a business owner selling Widget XYZ as an original design to a retailer, and your contract with the retailer contains an indemnity clause, you, rather than the retailer, ...
Why limit indemnity clauses?
On the other hand, there are good reasons to limit indemnity clauses only to circumstances you can control. For example, say you own a design studio and are hired to create an original work for a client. After you turn the work over to the client, he makes changes to the design so that a large portion of it copies the design of a well-known brand. If that brand sues your client, you would want to be sure any indemnification clause was limited so that it excludes any changes made after you turn over the work so you don’t have to pay in this situation.
How does indemnity increase trust?
Indemnity increases the level of trust in a relationship because one party is willing to cover the other party’s losses
What are the negatives of a lawsuit?
Negatives: The potential risks remain unspoken so if something does happen, the correct party may not be the one paying for it. Lawsuits are more likely to occur and, when they occur, are often more costly.
Can you seek indemnity for shoddy workmanship?
If shoddy workmanship causes a customer or visitor to be injured, you should be able to seek indemnity from the contractor so that he (and not you) will be responsible to pay for the person’s injury. On the other hand, there are good reasons to limit indemnity clauses only to circumstances you can control.
Is an indemnity clause too detailed?
People often make the mistake of being too detailed in an indemnity clause. Indemnity provisions don’t have to be overly complicated, but they should be specific enough to be understood by the parties. Often, just the threat of having to pay another person’s legal fees is enough to force a client or contractor to correct his behavior.
Do you have to indemnify a party?
In most cases, the requirement to indemnify must be contained in a written contract between the parties. However, in some states parties may be required to pay for the losses of another in certain limited circumstances.
Where does indemnification arise?
Indemnification generally arises as part of a contract. Some of the most common places where you might find an indemnity clause include:
What is indemnity in law?
The term “indemnification,” or “indemnity,” in the most general sense means an agreement to hold a party harmless for losses. When one party indemnifies the other, they agree not to hold them liable for damages. Indemnity is generally a contractual obligation, which can be expressed in a contract clause with such language as:
What is an insurance policy?
An insurance policy is also a form of indemnity . An insurance policy indemnifies the policyholder against losses or damages covered under the policy. For example, a grocery store may purchase a liability insurance policy to indemnify them against negligence claims. If a shopper slips on a wet spot on a floor and hurts their back, they could sue the grocery store for their damages. By indemnifying the grocery store through an insurance policy, the insurer then agrees to pay for those damages. Though this is a very specific example of indemnification for personal injury, businesses can be held liable for countless types of claims, so for many business owners, liability insurance is one critical way to indemnify their business.
What is Newburn Law?
At Newburn Law, P.C., we care about protecting your business. We know for many of our clients, their business is their livelihood, and we do not want a poorly drafted contract to expose them to an unnecessary level of risk. Consult with our experienced transactional attorneys about what indemnification is and how your business can benefit. Call us today at 303-847-4987 to set up a consultation with our experienced business lawyers.
Can an indemnity clause be waived?
Although the exact terms of the indemnity clause will depend specifically on the language in the contract, generally, indemnity clauses will not indemnify against acts of gross negligence, willful or intentional conduct. For example, if a corporate director commits fraud, his indemnity from liability from the corporation will typically be waived because of the intentional nature of his conduct.
Is an indemnity clause unenforceable?
Indemnity clauses may also be held unenforceable for other reasons. Some states forbid indemnity clauses that require a party to indemnify another against punitive damages. The policy reason for this is that the party would then be agreeing to compensate another party for actions that are found to be willful, malicious, or intentional. The enforceability of indemnity clauses varies from state to state, so be sure to consult with an experienced business lawyer to ensure your indemnity clauses will be effective when put to the test.
Indemnify
To compensate for loss or damage; to provide security for financial reimbursement to an individual in case of a specified loss incurred by the person.
indemnify
v. to guarantee against any loss which another might suffer. Example: two parties settle a dispute over a contract, and one of them may agree to pay any claims which may arise from the contract, holding the other harmless. (See: hold harmless)
What Is Indemnity
Indemnification is protection against loss or damage. When a contract is breached, the parties look to its indemnity clause to determine the compensation due to the aggrieved party by the nonperformer. The point is to restore the damaged party to where they would have been if not for the nonperformance.
Indemnity and contracts
There are numerous contractual scenarios that could benefit from having an indemnity clause as part of the agreement. They include:
Promissory Notes with Hold Harmless Indemnity Agreement
To anticipate the possibility of a promissory note becoming lost or damaged, it is a good idea to include an indemnity agreement in the note itself. Such a provision also requires the borrower to execute a replacement note if the original is lost or damaged.
What is indemnification clause?
What Is Indemnification? When an indemnification clause is inserted into a contract, it is meant to transfer risk between the contracted parties. In most cases, these clauses are used to make sure that a potential loss will be compensated. If you are the party covered by this clause, it means that the other contractual party is promising ...
Why is indemnification important?
This protection is important because damaged parties are still able to pursue compensation for their losses even if this clause isn't in the contract.
What does "defend" mean in an indemnification clause?
If the word "defend" is included in an indemnification clause, it means that the contracted party that caused the harm is responsible for defending the indemnified party from lawsuits. However, many indemnified parties request that this word is left out so that they retain the right to defend themselves.
What does it mean when a contract includes mutual indemnification?
For instance, if your contract includes a mutual indemnification clause, it means that both contracted parties have agreed to cover losses that result from a breach of contract. With one-way indemnification, only one party is indemnified, meaning only their losses would be covered. However, the party that is indemnified will often have ...
What does it mean when you are covered by a contract?
If you are the party covered by this clause, it means that the other contractual party is promising to compensate you if their actions cause you to suffer a loss. For example, they may commit an action that results in you being sued by a third-party.
What does "hold harmless" mean in a contract?
The words defend, hold harmless, and indemnify must be included in an indemnification clause. Essentially, hold harmless and indemnify mean the exact same thing. When you indemnify another person, you are covering their losses that you have caused.
What is an Indemnification Agreement?
An indemnification agreement, also called an indemnity agreement, hold harmless agreement, waiver of liability, or release of liability, is a contract that provides a business or a company with protection against damages, loss, or other burdens.
Purpose of an Indemnification Agreement
This legal document will hold harmless the initial party, the business or company and ensure that they are able to continue its operations and continue providing high quality products and services to its customers.
Common Areas of Protection
Frequently, an indemnification agreement will be created in an insurance agreement between two parties. This could exist in any form of insurance including motor vehicle insurance, health insurance, life insurance, homeowners’ insurance, malpractice insurance, and others.
Examples of Indemnification
Indemnifications will provide protection in a number of different ways, such as:
Types of Indemnification Agreements
There are two different types of indemnification agreements, which include express and implied indemnity. These specify:
Who Signs an Indemnification Agreement?
The two parties of the contract will sign the indemnification agreement. This means the indemnitee, or the person/business/company providing the good/service, will sign the document. The indemnifier, or the person/business/company receiving the good/service, will sign the document as well.
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