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.
The most important part of an indemnification clause is that it protects the indemnified party from lawsuits filed by third parties. 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.
Generally, you should only agree to pay for losses arising from your own actions and not the other party's actions. If you want to draw a stricter line, you could negotiate an indemnification provision that only holds you liable for gross negligence and willful misconduct, and not simple negligence.
California courts have held that indemnify and hold harmless confer distinct rights: (1) “Indemnify” is an offensive right, allowing the indemnified party to seek indemnification from the indemnifying party; (2) “Hold harmless” is a defensive right, protecting the indemnified party from being bothered by the other ...
Causes of action include damages resulting from a right to seek relief. The indemnifying party becomes responsible for a cause of action when the indemnified party's—or a third party's—right to seek relief, as the case may be, accrues.
What is an Indemnification Clause? | Indemnity Explained
What are the limitations of indemnity?
What is Limit of Indemnity? The Limit of Indemnity (LOI) is the maximum amount the insurer will pay under a policy during the policy period. Legal costs may be included within the Limit of Indemnity or may be covered as an additional amount, depending on the policy purchased.
Depending on the specifics of an indemnity clause in a contact, it can shift all the risk of something going wrong to you and leave the other party free to walk away, even if the other party is partly at fault.
Why is an indemnity better than breach of contract?
Another difference between damages and indemnity is that damages can only be claimed for breach of contract whereas in the case of indemnity a breach of contract does not have to take place. Indemnity may be claimed for loss caused by action of a third party which may not necessarily result from the breach of contract.
For example, the term "indemnify" is used when a business hopes to protect itself against claims from a customer's error, while a hold harmless clause prevents a business from taking any responsibility for a customer's mistake.
In an indemnity agreement, one party will agree to offer financial compensation for any potential losses or damages caused by another party, and to take on legal liability for whatever damages were incurred. The most common example of indemnity in the financial sense is an insurance contract.
What is the difference between liability and indemnity?
The key difference between public liability and professional indemnity is that while public liability covers for risks of injury or damage, professional indemnity is focused on the work side of things, covering for professional errors and negligence.
An indemnity is a primary obligation; it does not depend on having to prove a breach of a contractual obligation. This offers a number of advantages over bringing a damages claim for a breach of contract: An indemnity will typically be triggered by losses being incurred, without the need to prove any "fault".
In contract law, indemnity is a contractual obligation of one party (indemnifier) to compensate the loss incurred to the other party (indemnity holder) due to the acts of the indemnitor or any other party.
If the indemnification provision is found to be valid, this usually means that the party has surrendered their right to damages in a lawsuit. However, if the indemnification provision actually wasn't valid, then a lawsuit can actually be filed against the other party.
"Each party agrees to indemnify, defend, and hold harmless the other party from and against any loss, cost, or damage of any kind (including reasonable outside attorneys' fees) to the extent arising out of its breach of this Agreement, and/or its negligence or willful misconduct."
A common example of indemnification happens with reagrd to insurance transactions. This often happens when an insurance company, as part of an individual's insurance policy, agrees to indemnify the insured person for losses that the insured person incurred as the result of accident or property damage.
A fault-based indemnity allocates risk for loss to the party that was at fault. Under a fault-based indemnity regime, a contractor would only be responsible for indemnifying the owner for a loss to the extent the contractor's negligence caused it.
Indemnification is an agreement where your insurer helps cover loss, damage or liability incurred from a covered event. Indemnity is another way of saying your insurer pays for a loss, so you don't have financial damages.
Indemnity insurance is a protection policy sometimes purchased during housing transactions. For a one-off payment, you get a policy that covers the cost implications of a third party making a claim against any defects with the property you are about to buy.