If you have been asked to sign an indemnity agreement, you will not be alone in needing an indemnity agreement definition. For, it is not always immediately clear what a general indemnity agreement really is, let alone one specific to you.
What is an indemnity agreement?
Indemnity clauses and indemnity agreements are exceedingly common. The reason being is that an indemnity agreement is when one side of the agreement, known as the indemnifying party, will be accountable for any losses incurred by the other party. Importantly, the indemnifying party will also cover those losses - they are not just held responsible. This cover will only occur if the losses, incurred by the indemnified party, are unjustified for that party to pay for or suffer.
How does an indemnity agreement work?
Indemnity agreements work by outlining all the details covering what an indemnifying party will pay for and in what circumstances. Importantly, an indemnity agreement can be reached by inserting an indemnity clause into a wider contract.
Indemnity clauses usually will be one of two types. Firstly, there is third party indemnity. Many of us may be aware of this form of indemnity through our third party insurance policies for driving. In terms of a third party indemnity agreement, they give protection to the indemnified party. It means that the indemnifying party will cover any damage the indemnified party incurs as the result of a third party claim.
The other form of indemnity agreement is where the indemnified party is covered for any losses incurred as a result of the indemnifying party’s actions. That may mean that the indemnifying party breached a contract, for example.
Indemnity agreements need to include a couple of vital concepts to work. Firstly, the agreement must detail what will trigger the indemnity to occur. That means the agreement must identify the specificities which will result in the indemnifying party covering any losses. Secondly, the types of losses covered must also be identified.
Advantages of an indemnity agreement
The main advantage of an indemnity agreement or clause is that it is a good way to manage risk. For both sides of the agreement, they know what they are covered for or what they may have to cover. As a result, a form of comfort is provided by the agreement. That’s important as it makes the agreement far more likely to be entered into. Both parties are therefore more likely to do business with one another and that business arrangement can help their company grow and be more profitable.
Indemnity agreements are not agreed upon to catch people out. In fact, quite the opposite. They help both parties trust each other and start a business arrangement based on respect.
Contractbook and indemnity agreement
Contractbook can help in the creation of indemnity agreements through using our software and templates to generate an indemnity agreement sample. That sample can then be amended as you see fit and as you need. Doing so can materially reduce the amount of time you spend creating an indemnity agreement every time you need one. By not having to start from scratch, as well as drawing data from computer systems, indemnity agreements can actually be automated when required by a firm. It means the accuracy of the agreement can be relied upon as well as ensuring that one is always generated when needed.