Key Takeaways

  • An indemnitor agreement outlines the responsibilities of the indemnitor, who agrees to cover losses, damages, or liabilities incurred by another party (the indemnitee).
  • The indemnitor may be an individual or business entity that agrees to compensate the surety or obligee if the principal fails to meet contractual obligations.
  • Common types of indemnity agreements include broad form, intermediate form, and limited form indemnities, each offering different levels of protection.
  • Key elements of an indemnitor agreement include the scope of indemnity, duration of the obligation, exclusions, and limitations of liability.
  • These agreements are widely used in construction contracts, service agreements, leases, bail bonds, and corporate transactions.
  • Legal review is essential to ensure the indemnity language aligns with state laws and does not expose the indemnitor to unintended risks.

You may need to define indemnitor when you're working with contracts or bonds.

What Is an Indemnitor?

An indemnitor is a company or person agreeing to take on the obligation that would typically be placed on a surety if an individual defaults on a bond issued to him. If the applicant doesn't qualify for reasons of risk by the standards of the surety, an indemnitor might be necessary for the bond process. Many people mix up the words “indemnitor” and “indemnitee,” which can cause confusion.

When a contract specifies that either of the involved parties could be subject to indemnification claims, it's important to understand the differences between indemnitor and indemnitee. These can't be replaced with standard alternatives for defined terms in the party name.

You could use the phrase “indemnifying party,” but using “indemnified party” sounds awkward because it's standard procedure for a given party and also its representatives and affiliates to be entitled to indemnification. Describing all members of the broader groups as “parties” would make the documentation more confusing.

An indemnitor, also called a guarantor, is a person or group of people agreeing to cosign for the bail bond of a defendant through a company that offers bail bonds, such as an underwriter or agent. The process of cosigning on a bond is referred to as indemnification. By cosigning, the indemnitor takes responsibility for the repayment of the amount owed to the bail bond agent if the defendant skips bail or fails to appear when required to be in court. An indemnitor is usually a coworker, family member, or friend of the defendant.

Before someone is eligible to cosign for a bail bond, the agency will ask certain questions to make sure they are financially liable for the bond. This process might include running a credit check to verify the answers provided by the potential indemnitor. Upon approval, the indemnitor will meet with the agent at the bail bond company, complete all required documents, and pay any necessary fees. The final step in the process is bailing the defendant out of jail.

In order to qualify as a cosigner or indemnitor, an individual or group must show proof of their financial capability to repay the full bond amount. This would be required if the defendant doesn't meet the obligations. The indemnitor assumes the financial liability for the amount of the bond until the defendant is either sentenced on or exonerated of all charges.

Understanding the Purpose of an Indemnitor Agreement

An indemnitor agreement is a legally binding contract in which one party (the indemnitor) agrees to compensate another party (the indemnitee) for certain losses, damages, or liabilities. These agreements are designed to allocate risk between parties, ensuring that the indemnitee is protected from potential financial harm caused by the actions or omissions of the indemnitor or a third party.

Indemnitor agreements are often used in situations where a company or individual provides services, performs work, or enters into a business relationship where the risk of liability exists. For example, a contractor might agree to indemnify a property owner against claims arising from worksite accidents. In the bail bond context, the indemnitor agrees to cover the financial risk if the defendant fails to appear in court.

The agreement typically specifies:

  • Who is responsible for indemnifying whom
  • The scope of the indemnity (types of losses or damages covered)
  • Conditions that trigger the indemnification
  • Duration of the indemnity obligation

What Is Surety Bond Indemnity?

A licensed bonding company can provide surety bonds for many business-related purposes, such as obtaining a permit or business license. If the licensed bonding company is willing to grant a surety bond for your company, this usually will require protection from any loss. 

The protection from loss is called a surety bond indemnity. The amount and type of your bond will depend on whether a surety bond is required. Depending on the amount, the company might require you, your business partners, and/or your spouse to submit surety bond indemnity as well.

Obtaining a business surety bond requires the involvement of three parties:

  • The beneficiary, which is the government agency or other related party requiring the bond
  • The principal, which is your business
  • The underwriter, which is the company that issues the bond

These three parties are required, although you may have a fourth involved party. This party is called the indemnitor. The indemnitor's role is to cover all losses incurred by the underwriter on the bond. These might include attorney fees, court costs, or unpaid premiums. The underwriter, or bond-issuing company, will set requirements for indemnification of the surety bond.

Most bonding companies require indemnitors to have a positive business reputation in the community and meet specific financial requirements. The underwriter may also require you and other people involved in your business, or the business itself, to serve as indemnitors. The other people involved in your company might include the chief executive officer or president. For incorporated businesses, the majority shareholder might also need to serve as an indemnitor.

Agreements for surety bond indemnity are always done in writing. Many companies will include the agreement as part of the application you fill out to obtain a surety bond for your business. However, some companies only require the indemnitor to sign the document.

Common Use Cases for Indemnitor Agreements

Indemnitor agreements are used across a wide range of industries and transactions to manage risk. Common scenarios include:

  • Construction Contracts: Protect property owners and developers from subcontractor errors, property damage, or worker injuries.
  • Commercial Leases: Landlords often require tenants to indemnify them against liabilities arising from the tenant's use of the premises.
  • Service Agreements: Service providers may agree to indemnify clients against third-party claims resulting from the provider's work.
  • Mergers and Acquisitions: Sellers may indemnify buyers against unknown liabilities discovered after closing.
  • Bail Bonds: An indemnitor assumes financial responsibility if the defendant fails to appear in court.

Key Elements of an Indemnitor Agreement

A well-drafted indemnitor agreement should clearly define the following elements:

  1. Identification of Parties: Names of the indemnitor, indemnitee, and any third parties involved.
  2. Scope of Indemnity: Details the types of claims, damages, or losses the indemnity covers, including attorney’s fees, legal costs, and court judgments.
  3. Triggering Events: Specifies the circumstances that activate the indemnity, such as breach of contract, negligence, or failure to perform obligations.
  4. Exclusions and Limitations: Identifies claims or liabilities that are not covered under the agreement, such as intentional misconduct or gross negligence.
  5. Duration: States how long the indemnity obligation lasts, whether it’s tied to the completion of a project or extends beyond termination.
  6. Notice Requirements: Describes how and when the indemnitee must notify the indemnitor of a claim.
  7. Governing Law: Specifies the state laws that will apply to the interpretation and enforcement of the agreement.

Types of Indemnity Agreements

Indemnity agreements may take several forms, each offering different levels of protection. Understanding these types can help parties choose the right structure for their needs:

  • Broad Form Indemnity: Requires the indemnitor to cover all losses, including those caused by the indemnitee's own negligence. Some jurisdictions restrict or prohibit this type due to its one-sided nature.
  • Intermediate Form Indemnity: The indemnitor covers losses caused by both parties' joint negligence but not those caused solely by the indemnitee's negligence.
  • Limited Form Indemnity: The indemnitor covers only the losses directly caused by their own actions or negligence. This is the narrowest and most balanced form of indemnity.

These types often appear in construction contracts, commercial leases, service agreements, and supply chain contracts.

Frequently Asked Questions

  1. What is the difference between an indemnitor and an indemnitee?
    The indemnitor is the party that agrees to compensate for losses, while the indemnitee is the party protected from such losses under the agreement.
  2. Are indemnitor agreements enforceable in all states?
    Generally, yes—but enforceability depends on state laws. Some states limit broad indemnity clauses, especially those covering a party's own negligence.
  3. Can an indemnitor agreement be unilateral or mutual?
    It can be either. A unilateral agreement involves one party agreeing to indemnify the other, while a mutual agreement involves both parties agreeing to indemnify each other under specific circumstances.
  4. What should be included in an indemnity clause?
    Key elements include the parties involved, scope of indemnity, triggering events, exclusions, time limits, and governing law.
  5. Do I need an attorney to draft an indemnitor agreement?
    While not legally required, consulting an attorney is highly recommended to ensure the agreement is legally sound and compliant with state regulations. You can find experienced attorneys on UpCounsel who can assist with drafting or reviewing your indemnitor agreement.

If you need help to define indemnitor, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.