CONTRACT TIP: WHAT IS AN INDEMNITY CLAUSE.

CONTRACT TIP: WHAT IS AN INDEMNITY CLAUSE.

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The term “Indemnity” is used not only in a contractual context but in day to day relations. The Black’s Law Dictionary defines indemnity as “[a] duty to make good any loss, damage or liability incurred by another,” or alternatively “[t]he right of an injured party to claim reimbursement for its loss, damage or liability from a person who has such duty.”

Indemnity Clauses can be defined in various forms, as depicted in the wording of the contract. Some of these types include:

  1. Indemnity clauses in which a party to the contract agrees to indemnify the other party against a liability in tort. For instance,  with respect to a Subcontract, the contractor A and Subcontractor agree to an indemnity clause where the Contractor is to indemnify the Subcontractor against any loss or liability with respect to personal injury, in relation to the execution of the contract. If Subcontractor, in the course of work causes injury to any of the Contractor’s employees, the Subcontractor has the right under the agreement to be indemnified by the Contractor, effectively making the Contractor bear the liability towards its employee.
  2. Where one party agrees to indemnify another party against liability which third parties may incur towards that party.
  3. Reciprocal indemnity clauses where either party bears the risk of loss, injuries/death, or damage to property of a counterpart.
  4. Clauses catering to instances of a breach of contract, whereby if the indemnitee suffers a loss caused by a breach of promises contained, such indemnitee has the right to be indemnified. 

Indemnity clauses can be an effective way to allocate contractual risks between parties in a transaction.

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