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Indemnity Agreement

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Definition:

The Principle of Indemnity
To explain an indemnity agreement, it is first necessary to define the term "indemnity." Indemnity is defined as "a duty to make good any loss, damage, or liability incurred by another (Black's Law Dictionary). Indemnity has the general meaning of "hold harmless;" that is, one party holds the other harmless for some loss or damage. Some variations of meaning for therm "indemnity:"

  • Indemnity also includes an understanding that an injured party has a right to claim reimbursement or compensation for a loss or damage against the person who has the duty.
  • Indemnity can also refer to compensation for loss or damage from the actions of another party
  • And indemnity can also also be described as a legal exemption from loss or damages, as in the case of an indemnity clause in a contract.

Indemnity Agreements
An indemnity agreement (sometimes called a "hold harmless agreement" can be a contract or a section of a contract. In these cases, an indemnity agreement is contract language that indemnifies (holds harmless) one of the parties in a contract for specific actions that might cause damage to the other party.

Examples of Indemnity Agreements

  • A kennel may want an indemnity agreement in a contract with a pet owner to keep the kennel from being sued for damage caused by the owner's pet to other pets. I this case, the pet owner is being asked to indemnify the kennel owner (to hold the kennel owner harmless) for damages caused by the pet.
  • Indemnity clauses are often found in intellectual property licensing agreements.
  • In another general example, a landlord may require a tenant to sign a "hold harmless" clause in a rental agreement, agreeing that the landlord is not responsible for damages caused by the tenant's negligence.
In each of these cases, and many others, Party A must be persuaded to sign a contract which could cause him or her to be sued. So, Party B is being required to indemnify Party A, so the contract can be signed.

Types of Indemnity Agreements
Indemnity agreements are found commonly in construction contracts. In this context, there are several types:

  • Broad form indemnity agreements, also called "no fault" agreements, have been common in construction contracts, where all loss is placed on the sub-contractors. Many states have declared this type of indemnity agreement to be illegal.
  • Limited indemnity agreements state that the subcontractor pays for all damages caused by the subcontractor's own negligence. This type of indemnity agreement still places a heavy burden on the subcontractor.
  • Comparative form agreements or clauses are based on the common law principle that negligence is based on actions over which the actor has complete control.
See this article at About.com's Construction site for more information on these types of indemnity agreements.

Indemnity Agreements and Dangerous Activities
Businesses that offer somewhat dangerous activities to the public (skiing, para-sailing, amusement park rides) require that the members of the public sign an indemnity agreement releasing the business from liability in case of an accident. In reality, if the business is found to be negligent (faulty equipment, poor maintenance), the individual who was injured still has a claim against the company.

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