CONTRACT OF INDEMNITY
Indemnity means Insurance or Security or Protection. Principle: Indemnity is an obligation by a person to provide compensation for a particular loss suffered by another person (indemnitee/indemnity holder). Indemnities form the basis of many insurance contracts; for example, a car owner may purchase different kinds of insurance as an indemnity for various kinds of loss arising from the operation of the car, such as damage to the car itself, or medical expenses following an accident. In an agency context, a principal may be obligated to indemnify their agent for liabilities incurred while carrying out responsibilities under the relationship. While the events giving rise to an indemnity may be specified by contract, the actions that must be taken to compensate the injured party are largely unpredictable, and the maximum compensation is often expressly limited. In the old English law, Indemnity was defined as “a promise to save a person harmless from the consequences of an act. Such a promise can be express or implied from the circumstances of the case”. Rights of Indemnifier are also there like after compensating the indemnity holder, indemnifier is entitled to all the ways and means by which the indemnifier might have protected himself from the loss.
There are some Rights of the indemnity holder under Section 125, defines the rights of an indemnity holder. These are as follows - The promisee (Indemnity holder) in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor (Indemnifier). These are like the right of recovering Damages, all damages that he is compelled to pay in a suit in respect of any matter to which the promise of indemnity applies. Right of recovering Costs -all costs that he is compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor and has acted as it would have been prudent for him to act in the absence of the contract of indemnity, or if the promisor authorized him in bringing or defending the suit. Right of recovering Sums -all sums which he may have paid under the terms of a compromise in any such suit, if the compromise was not contrary to the orders of the promisor and was one which would have been prudent for the promisee to make in the absence of the contract of indemnity, Therefore, at the same time, if he has followed all the conditions of the contract, he is entitled to the benefits. Another important question in this is that when the Commencement of liability does arise. In general, as per the definition given in section 124, it looks like an indemnity holder cannot hold the indemnifier liable until he has suffered an actual loss. This is a great disadvantage to the indemnity holder in cases where the loss is imminent and he is not in the position to bear the loss. An indemnity is distinct from a warranty in many ways like indemnity guarantees compensation equal to the amount of loss subject to the indemnity, while a warranty only guarantees compensation for the reduction in the value of the acquired asset due to the warranted fact being untrue (and the beneficiary must prove such diminution in value). Warranties require the beneficiary to mitigate their losses, while indemnities do not. Warranties do not cover problems known to the beneficiary at the time the warranty is given, while indemnities do. Thus in nutshell, we have understood that Contracts of Indemnity has been defined as: "A Contract whereby 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, is called a contract of indemnity." The term is often used in business contracts and insurance. Indemnity, in simple words, is protection against future loss. The term 'Indemnity Agreement' is often used in the US. Contract of Indemnities should all satisfy the conditions of a valid contract. All Contracts of Insurance are Contracts of Indemnity except life insurance. The indemnity holder can call upon the indemnifier to save him from loss even before the actual loss is incurred.