A Contract of indemnity is a legal agreement between two parties, the indemnifier and the indemnified, where the indemnifier promises to compensate the indemnified for any loss or damage that may arise as a result of a specified event or situation. In other words, a contract of indemnity is a promise to protect one party from financial loss or liability resulting from some specified act or omission of the other party.
The Indian Contract Act, 1872 defines a contract of indemnity as “a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person.”
Contract of Indemnity different provisions
The Indian Contract Act, 1872 contains various provisions related to contracts of indemnity. Some of the key provisions are as follows:
- Definition: Section 124 of the Indian Contract Act defines a contract of indemnity as “a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person.”
- Parties: A contract of indemnity involves two parties – the indemnifier and the indemnified. The indemnifier is the party who promises to compensate the indemnified for any losses or damages suffered by the latter.
- Contingent contract: A contract of indemnity is a contingent contract, which means that the indemnifier’s liability arises only when the specified event occurs.
- Scope of liability: The indemnifier’s liability is limited to the amount of loss or damage suffered by the indemnified, unless the contract specifies otherwise.
- Contribution among co-indemnitors: Section 145 of the Indian Contract Act provides for the right of contribution among co-indemnitors. If two or more persons are jointly liable under a contract of indemnity, and one of them has paid the full amount of the indemnity, that person is entitled to claim contribution from the other co-indemnitors in proportion to their respective liabilities.
- Termination: A contract of indemnity terminates when the specified event occurs and the indemnifier has fulfilled his obligation to compensate the indemnified for any losses or damages suffered.
- Rights of indemnifier: The indemnifier has the right to take any steps necessary to protect the indemnified from loss or damage, including defending any legal action taken against the indemnified.
- Duty of indemnified: The indemnified has a duty to take all reasonable steps to minimize the loss or damage suffered, and to provide the indemnifier with all relevant information and assistance.
Features of a contract of indemnity include:
- A Contract of indemnity is a contingent contract, which means that the liability of the indemnifier arises only when the specified event occurs.
- The loss or damage for which the indemnifier is liable must be caused by the conduct of the indemnifier himself or of some other person.
- The indemnifier’s liability is limited to the amount of loss or damage suffered by the indemnified, unless the contract specifies otherwise.
- The indemnifier has the right to take any steps necessary to protect the indemnified from loss or damage, including defending any legal action taken against the indemnified.
Examples of Contracts of indemnity include:
- Insurance contracts, where the insurer promises to indemnify the insured for any loss or damage covered by the policy.
- Contracts between a principal and agent, where the principal agrees to indemnify the agent for any losses incurred while acting on behalf of the principal.
- Contracts between a borrower and lender, where the borrower agrees to indemnify the lender for any losses or liabilities arising from the borrower’s use of the loaned funds.