Are you planning on protecting your company or business against any loss? Say hello to indemnification agreements. No doubt you might have thought of the term liability, which can connect with indemnification and incentives.
An indemnity agreement is acquired by a third party that covers a party from future losses they might happen to experience. The document has provisions stating that the party applying for indemnification holds another party harmless in every direction, including expenses incurred and interest on said liabilities.
What is indemnity?
Indemnity is a monetary or value or deed paid by the responsible person to the injured party that is used to compensate for material or moral damages caused as a result of an unlawful act. The court may decide to pay moral indemnity to compensate for the injuries suffered by personal rights, material indemnity to compensate for the loss of property due to the unlawful act, or to pay punitive damages in order to pay for all the damage thought to have been caused because of an illegal act. Indemnity can also be defined as the price paid by one party in order to protect themselves from losing their possessions if they are sued by another party.
What Is an Indemnity Agreement?
An indemnity agreement is a contract between two parties that states that one of the parties will be held harmless, with no liability for damages or losses due to activities as a party to the agreement. The indemnity agreement is intended to protect the party that might be held liable by holding the person harmless from that liability. The language contained in an indemnity agreement may have some limitations.
What is the purpose of the contract of indemnity? (Indemnification Agreement)
An indemnity is a contract where the indemnifier steps up to take responsibility for the losses and injuries listed in the agreement. Indemnity agreements define the scope of liability, but the terms of an indemnification agreement can be reasonably complicated.
Multiple parties will be involved in some scenarios, so you may need counsel from a business attorney to help create an effective indemnity agreement. The language used in this document clearly defines the extent of a party’s liability, as well as the ways in which they can reduce their monetary responsibility.
What is included in an indemnity agreement?
An indemnity agreement is an general form of agreement in which one party is obligated to protect or save another from financial hardship due to a loss.
The “indemnified” party is the party protected; the “indemnifier” is the party that must save the other from financial hardship when a disaster strikes.
An indemnity agreement can be used to protect the interests of both parties. Although it is not legally required for a party to sign an indemnification agreement, it may explain the consideration (usually a sum of money) that will be used to secure the agreement.
A complete indemnity agreement should state the specific terms under which the indemnitee will be held harmless. The indemnitee must approve any settlement deal before they enter into the contract with the other party.
A standard indemnification agreement exists in many business transactions, although it may not always be clearly defined. Like all other contracts and legal documents, Indemnification agreements are generally comprised of several elements.
The person seeking indemnification should review and understand what is included in this agreement.
What is the difference between a hold harmless agreement and an indemnity agreement?
It is important to note that this legal document is often confused with a similar one – a Hold Harmless Agreement. Though these two documents have a lot in common in terms of purpose and meaning, they are different in a few ways.
While both forms protect the parties from certain liabilities, only indemnification provides broader coverage. This form also covers losses that are not connected to a breach of an agreement or duties. A Hold Harmless Agreement does not provide such comprehensive coverage.
Indemnity agreements can be found in many forms, from a few lines in small business contracts to long paragraphs of detailed legalese that parties agree upon during big deals or before big projects. An indemnity agreement is a common legal practice that is highly used at the time of purchase of insurance policies which provides that if any kind of loss comes out of any accident and it is not directly insured by the policyholder, then the company will accept liability for the same and pay accordingly.
The insurance company, too, has an indemnity agreement with its directors and shareholders so that they agree to take full responsibility after conducting due diligence on their statements.