Definition of Contract of Indemnity
A contract of indemnity is a legal agreement in which one party, known as the indemnifier, agrees to compensate another party, known as the indemnitee, for any loss, damage, or liability that the indemnitee may suffer as a result of a specified event.
In simple terms, indemnity means security or protection against loss.
Scope of Contract of Indemnity
The scope of a contract of indemnity is typically defined by the terms and conditions of the agreement. The parties to the agreement will outline the specific situations in which indemnification will be provided, the amount of compensation that will be paid, and any other relevant details.
Example: A software company might sign a contract of indemnity with a client, agreeing to compensate the client for any damages resulting from the software’s failure to perform as intended.
Features of Contract of Indemnity
- Protection against loss: The main purpose of a contract of indemnity is to protect the indemnitee against loss, damage, or liability that may result from a specified event.
- Bilateral agreement: A contract of indemnity is a bilateral agreement in which both parties have mutual obligations. The indemnifier agrees to provide protection, and the indemnitee agrees to pay for that protection.
- Written agreement: Like any other contract, a contract of indemnity must be in writing and signed by both parties. This is necessary to ensure that there is clear evidence of the agreement in case of disputes.
- Specific events: The scope of indemnification is limited to specific events that are outlined in the contract. The indemnifier is only obligated to provide compensation for losses that fall within the scope of the agreement.
- No transfer of risk: Unlike insurance, which involves transferring the risk of loss to a third party, a contract of indemnity does not involve the transfer of risk. The parties themselves assume the risk of loss and provide compensation to each other accordingly.
