An indemnity is a security against loss. This Indemnity Agreement is a form of security that will oblige one party (the ‘indemnifying party’) to compensate another (the ‘indemnified party’) for a particular loss suffered by that party.
The indemnifying party may or may not be responsible for the loss suffered by the indemnified party.
An indemnity is distinguished from a guarantee granted by one party in regard to the potential debts of another. In a Guarantee Agreement the Borrower is the one primarily responsible for payment of the loan and the Guarantor's liability is only ancillary. On the other hand, the liability of an indemnifier is primary. Insurance contracts, for example, are indemnities – the insurers will pay money to the insured first, and then pursue whoever caused the loss. Therefore the main reason for using an indemnity rather than a guarantee (or in addition to a guarantee) is that it provides the indemnified party with more protection.
An Indemnity is therefore particularly useful in situations such as:
- when a bank is to provide a loan to a company, it may require one or more companies in the same group to indemnify the bank against any loss;
- when companies intend to enter into a longer term agreement, the supplier may require its client to provide an indemnity to cover the risk of non-payment.
If you require a guarantee as well as an indemnity, there are several types available from Simply-docs.
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