Indemnity clauses shift risk of loss from the person who caused the damage to the indemnified party. This can create a financial burden, especially if the damage is severe. Additionally, indemnity clauses can discourage precautions, because there is no responsibility for losses.
Indemnity Agreement Details
- A description of the event triggering the indemnity
- A description of the types of loss the indemnifying party covers
For example, a clause may require the seller to cover the buyer’s legal costs and damages from an unfair dismissal claim identified during due diligence.
Indemnity insurance has a one-off fee and never expires. Buyers can purchase a policy instead of rectifying defects. Without an indemnity clause, parties cannot contractually claim compensation for damages or expenses. This does not prevent liability in court.
Risks of Indemnity Clauses
Indemnity clauses are interpreted to require professionals to indemnify owners for all damages even if only partially caused by them, which can be seen as an unreasonable term.
What are the risks of an indemnity clause? Indemnity clauses shift risk of loss from the person who caused the damage to the indemnified party, potentially leading to a lack of incentive to take precautionary measures.
Indemnity clauses include a description of the triggering event and the types of loss covered. For example, a clause may require the seller to indemnify the buyer for legal costs and damages arising from an unfair dismissal claim identified during due diligence.