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Indemnity Clause Definition
An indemnity clause
, defined as the clause which compensates either party in a contract against loss, is one of the most common ways for a party to mitigate the risk of a contract. Indemnity clause contracts provide repair, replacement, or payment for an indemnitee from an indemnitor.
Indemnity Clause Meaning
The term indemnity clause means a protection to one or both parties in a contract in the event a loss is incurred. Lawyers often refer to the concept as the "indemnity lottery"; though an indemnity clause in contract exists the outcome of said clause is still uncertain. Despite this, indemnity clauses are often included in contracts where one party has a distinct chance of experiencing loss as a result of problems with the transaction. Additionally, an indemnity clause hold harmless
agreement exists to displace the damages of one party from another.
Indemnity Clause Example
Maggie is an experienced lawyer. Working with commercial clients, her hard work and attention to detail have created mutually beneficial outcomes for both her and her clients. She is hoping to achieve another one of these outcomes while finalizing a contract for one of her clients today.
The contract is for two parties: a car manufacturer and a car seller. Maggie represents the car seller. In the contract, Maggie writes the details of how vehicles will be sold and shipped from the car maker to the car seller. She also writes an indemnity clause in contract
for the car seller to ensure that loss of product will be met with fair compensation.
She completes this contract, it is read by the consul representing the manufacturer, and is signed by both parties. As she is doing other work, Maggie receives a call about the contract. It seems her client, the seller of cars to individual customers, has not received the vehicles, caused by a delayed at the manufacturing plant. In this call Maggie is thanked for including an indemnity clause in transfer
because it covered the loss of income in the business: a small company which needs consistent operations in order to meet the needs of their expenses.
Maggie is pleased that she helped another client. She vows to use her expertise to help her clients, as well as herself, for as long as she can.