Indemnity And Its Use In Various Businesses
Indemnity
Indemnity
In its simplest form, indemnity means one contractual party will compensate the other party for any damages that occur. Special considerations may limit the total compensation of such damages. It is therefore extremely important to review any such clause thoroughly before signing an agreement.
Scope
Any expenses incurred through normal business activities may be indemnified. This includes but is not limited to legal expenses, loss of revenue, loss of profits, auditing expenses, judgments and settlements.
What is Indemnity Agreement
An
Indemnity Agreement or Hold Harmless Provision is an agreement whereby one party (the Indemnitor) agrees to hold another party (the Indemnitee) harmless of any injuries or financial losses. This agreement therefore legally exempts the Indemnitee and its kin from all liability, as the Indemnitor assumes all responsibility for losses and damages.
In some circumstances, the agreement may be used to restore the Indemnitee to its initial financial state should it incur a loss or, for example, in the case of an extreme sports company, the latter will ask its clients to sign an
Indemnity Agreement before performing a bungee jump; by signing the agreement, the client or Indemnitor agrees to hold the company harmless (and non-liable) for any injury, harm and any other undesirable outcome that may arise from bungee jumping.
In common parlance, indemnity is often used as a synonym for compensation or reparation.
However, the obligation to indemnify differs from the obligation to pay compensation, or make reparation, in that an obligation to indemnify is a voluntary obligation.
Under section 4 of the Statute of Frauds 1677, indemnity clauses must be constituted in writing.
In the UK, under the Unfair Contract Terms Act 1977 s4, a consumer cannot be made to unreasonably indemnify another for their breach of contract or negligence.
A Few Examples of Indemnity Agreement
Let's say that you have agreed to buy a home that was recently repaired due to an accident that was caused by the sellers own hand. It could be that the seller had an accident and drove his car into the living room picture window and there was serious damage to the home. By singing an indemnity agreement, you agree that any further problems with the home, even if the problem were to cause harm to a third party, that you will take responsibly for it, not the seller. This type of agreement absolves the original party, in this case, the seller, from any further legal problems.
Another example would be if you bought a piece of land that had a toxic spill on it due to an accident caused by the seller. By signing a real estate indemnity agreement, you agree that any future law suits filed by anyone for any reason over what happened to that piece of land are now your responsibility. So, lets say you built an apartment building on that piece of land and 20 years from now, people are sick because the toxic spill wasn't cleaned up properly. You would be the person legally responsible for the issue here, not the person who actually caused the problem in the first place.
While these types of agreements are obviously difficult to analyze or sign, they are considered very basic legal forms if you are buying a problem property for a price well below average. Many times, the best deals in the world of real estate come with problems and a real estate indemnity form will be a required part of buying that piece of property. The best advice is to have any problem piece of property analyzed as best you can before you sign on the dotted line.
What is Indemnification?
Indemnification is the act of being held not liable or being protected from costs by shifting them to another party. Certain actions almost always include an indemnity agreement. Tenants signing a lease often agree to indemnify the owner of the property from costs or damages associated with being harmed on the property. This indemnity agreement normally has an additional clause that states the property owner must fix anything that could be potentially dangerous.
Difference between Indemnity and Guarantee
An indemnity is distinguished from a guarantee granted by one party in regard to the potential debts of another. In a Guarantee Agreement the Borrower is the one primarily responsible for payment of the loan and the Guarantor's liability is only ancillary. On the other hand, the liability of an indemnifier is primary. Insurance contracts, for example, are indemnities the insurers will pay money to the insured first, and then pursue whoever caused the loss. Therefore the main reason for using an indemnity rather than a guarantee (or in addition to a guarantee) is that it provides the indemnified party with more protection.
An Indemnity is therefore particularly useful in situations such as:
- when a bank is to provide a loan to a company, it may require one or more companies in the same group to indemnify the bank against any loss;
- when companies intend to enter into a longer term agreement, the supplier may require its client to provide an indemnity to cover the risk of non-payment.
Indemnity Agreement between Landlord and Tenant
A landlord would be indemnified from damages if a tenant tripped and fell down the stairs. However, if the stairs were in disrepair, and this matter had been brought to the attention of the landlord, an indemnity agreement would not prevent the renter from suing for damages if the disrepair caused the accident.
Tenants usually further agree to be held responsible for costs if the property is damaged. Agreeing to clean the carpets or flea bomb an apartment upon vacating the property is an indemnity agreement that protects the property owner. Deposits may be not be returned when a tenant fails to meet obligations stated in an indemnity agreement.
Concept of Indemnity Agreement in Stocks or Bonds Trading
Sometimes an indemnity agreement is signed when people use a company to invest in stocks or bonds trading. In order to use the companys services, the investing person agrees to hold the company not liable for any money losses that might be incurred by investing.
Use Indemnity Agreement in Intellectual Property
Occasionally one uses an indemnity agreement when intellectual property is leased. This is much like the tenant indemnification agreement. The holder of the intellectual property seeks exemption for any damages incurred by the person using the property. The leaser also agrees to take on any lawsuits that result from his or her use of the property.
Indemnity in Leisure Activities
Another type of indemnity agreement is harder to enforce. If you have ever been to an amusement park, you might note the ticket contains fine print about you riding rides at your own risk. The goal, of course, is to indemnify the park against a person suing for damages if injured on a ride. This seldom works, because technically, you have not signed an agreement. Most people hurt on an amusement park ride are able to sue for damages quite successfully.
Other leisure activities that might have you signing an indemnity agreement are things like skydiving and parasailing. Most companies will not allow you to participate in such activities unless you actually sign an indemnity agreement that holds them not liable for injury to yourself or death. In truth, most companies that offer somewhat dangerous leisure activities could not remain solvent without such an agreement.
Important provisions of the Indemnity Agreement for England and Wales:
Indemnification: Identifies the certain action that is being indemnified from any future claims and lawsuits;
Procedures for Indemnification: Enumerates the indemnification procedures;
Severability: If any part of the agreement is determined to be unenforceable, the remaining provisions will stay enforceable to the extent allowed;
Binding Effect: All parties involvedin the agreement will be bound to the terms of the agreement.
Why have Indemnity Agreements?
One way for a principal to protect itself is to provide that the culpable party bear the costs and expense for damages, including the costs of a verdict, settlement, or defense of the suit.
A contractual indemnity agreement is simply a way to shift risk to another by agreement. It is risk allocation and control. Indemnity can also be non-contractual, such as equitable, implied, or common law indemnity.
What is Professional Indemnity Insurance?
Professional Indemnity Insurance is compulsory for most professional businesses and services, these include traditional professions such as architects, engineers, brokers, solicitors, independent financial advisers, accountants, computer consultants, and new insurance covers for miscellaneous classes where professional indemnity insurance protects that business's interests against claims for error, omissions, professional neglect for both the principles and their employees.
Without professional indemnity insurance companies expose themselves and run the risk of being sued for all sorts of claims.
A professional indemnity insurance policy may cover you for areas such as libel and slander, professional neglect, malicious falsehood, passing off copyrights, breach of confidentiality, and negligent statement or actions.
Without professional indemnity insurance, companies run the risk of being exposed to many liabilities such as:
Libel & Slander
Downloading of viruses to third parties
Malicious falsehood
False attribution of authorship
Passing off copyright or trademarks
Intellectual property rights
Breach of Confidentiality
Breach of normal rights
Negligent statements
What you will be covered for
PI insurance protects your business against claims for loss or damage by a client or a third party if you have made mistakes or are found to have been negligent in some or all of the services that you provide for them. PI insurance will also cover legal costs.
Net Lawmans
Indemnity Agreements are in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes. Our documents are in plain English with explanatory notes, and have been drawn by expert team of Solicitors and Barristers who are expert in the field of indemnity agreements.
by: Miriam Taylor
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