Indemnity Statement: Everything You Need to Know
An indemnity statement is a provision in a contract that requires one or both parties to compensate one another for any liability, or harm.3 min read
An indemnity statement is a provision in a contract that requires one or both parties to compensate one another for any loss, liability, or harm that arises from the terms of the agreement.
In a contract, the indemnification clause serves as a type of insurance policy between all involved parties, reducing the liability and risk between those who sign the agreement. This type of clause creates an obligation for one party, referred to as the indemnitor, that requires them to pay for any losses that the other involved party is liable. These losses could include those related to the terms of the contract as well as any losses from other claims.
An indemnification clause often includes a separate obligation, which is called defense. Under this clause, the indemnitor is responsible to pay any losses the indemnitee incurs but can hire an attorney to defend the indemnitee in court against any claims. Indemnity clauses can have limits, such as to limit the amount of loss and/or limit the types of claims that are covered.
The most common obligation under an indemnification clause is against any third-party claims, which are claims brought forth by someone who isn't involved in the contract. However, some parties include indemnification claims that cover direct claims, also referred to as inter-party claims, which are those brought forth by one party against another party that's involved in the agreement. When a clause includes indemnification against direct claims, the usefulness is more limited. Typically, its purpose is to offer protection against claims that relate to any warranties or representations made by one or both parties.
The simplest obligation under an indemnification claim is referred to as the base clause. It works well for low-money, low-risk, and simple agreements. When you start adding more complicated indemnification clauses, the costs go up and the negotiation tends to become more drawn-out and complex. For simpler, smaller agreements, these additional clauses may not be necessary. Adding variants to an indemnification clause can add exclusions and limits to obligations and procedures. These variants are typically customizable to cater to the needs of all parties involved in the agreement.
Indemnification variants will also outline what claim types are covered. You may choose to include more detailed specifications of claims that would or wouldn't be covered under this clause. All parties involved in a legal contract should come to an agreement together about the types of claims that should be included in the indemnification clause as well as whether they wish to specify which specific claims are covered.
Indemnity Agreement: Basics
An indemnity agreement offers protection for an individual or a business against any legal action due to another's negligence. If you're working with a third party or business, you could prevent issues with liability by using an indemnity agreement if someone becomes injured.
Some of the most common reasons to use an indemnity agreement include:
- Granting the use of your property to someone else
- Hiring someone to provide services for your business or yourself
- Protecting another against the risk of being sued because of your activities or your business activities
Using an indemnity agreement in these cases can offer protection against any damages that result from the actions of another.
When it comes to liability, it's nearly impossible to be too safe. Protect yourself with an indemnity agreement when any risk is present. When you sign an agreement with an indemnity clause, you can reduce your liability in the event that something goes wrong and the action isn't your fault. For example, if you choose to hire a service professional, such as a plumber or IT consultant, you can protect yourself and reduce liability by signing an indemnity agreement. This serves as a safety net if a problem occurs as the result of someone else's actions.
Terms in an Indemnity Agreement
Other names for an indemnity agreement include:
- Assignment of indemnity
- Hold harmless agreement
- Indemnification agreement
- No fault agreement
This type of agreement may also be used between an employee and an employer to offer protection against damages, claims, losses, or liabilities when one party is involved in a specific activity. In an agreement, the indemnitee is the party who is protected under the terms. The indemnifier is the party who is responsible for protecting the indemnitee.
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