Rights of indemnity holder

Introduction:

Indemnity is a term used in the law of contract that refers to the right of a party to recover losses they may incur by another party. The concept is widespread even though there is no legal term to define it. It derives from English Law as well as from Roman Law and civil law systems. The terms “Indemnity Clause” and “Due Diligence Policy” are used in some legal documents for its exposition.

To make an indemnity, it is necessary for both parties to agree on its definition and purpose. Indemnity clauses are normally based on the principle or rule of ‘dissentientia minoris’ or a policy that offers guarantees to other parties but not to the writer of the document.

What is Indemnity?

An indemnity is a contract by which one party makes another party free from the consequences of liability and loss. This can be done by making an agreement with the other party and it is contingent on some event, like an accident or damage to property, occurring in future. The phrase indemnity means “to make somebody free” or “to exempt someone from liability.” If you are held liable for something because of your negligence, but then you have an indemnity insurance policy (or find someone else to indemnify you), you can claim against that policy to recover your losses. Section 124 of the Indian Contract Act, 1872 discusses the contract of indemnity which states that if there is an accident or damage on a property, the Indemnifier will pay for the loss, this contract of indemnity is made between two parties and it is described as a mutual contract. Indemnity holder meaning is the one who receives money on behalf of another. An indemnity is a contract by which one party makes another party free from the consequences of liability and loss. This can be done by making an agreement with the other party and it is contingent on some event, like an accident or damage to property, occurring in future. The phrase indemnity means “to make somebody free” or “to exempt someone from liability.” If you are held liable for something because of your negligence, but then you have an indemnity insurance policy (or find someone else to indemnify you), you can claim against that policy to recover your losses.

Duties of Indemnity Holder:

Under Section 125 of the Indian Contract Act, 1872, rights and duties of indemnity holder are governed by the following rules which are:

1) Must not conceal a loss: The duty-bearer must not conceal a loss that may occur. This is done to avoid misleading information given by the duty-bearer towards the indemnification claim. It is also done in order to avoid material changes occurring out of an indemnification claim and hidden losses being incurred by both parties involved in an indumentum contract.

2) Inform of a material change: If there is a material change that will affect the indemnity claim made by the indemnifying party, the duty-bearer must inform the other party.

3) Duty-bearer must provide evidence of losses: The duty-bearer must provide evidence for any losses that are incurred towards fulfilling an indemnification claim.

4) Provide assets in due time: The duty bearer should provide all available assets whenever an indemnity claim is made. This will enable the other party to claim indemnity effectively.

5) Should not depend on others: The duty-bearer should not depend on other parties or put all the burden of losses on them as it is against indemnity principles.

6) Must inform the other party: The duty-bearer must inform the indemnifying party about all material facts that may affect an indemnification claim.

7) Must not discriminate against the other party: The duty-bearer must not discriminate against an indemnification claim made by an indemnified party. He should give him justice and avail him of a reasonable amount of compensation for any loss he may incur.

8) Must not delay: The duty-bearer must not delay in fulfilling an indemnification claim. He must provide all required evidence of losses incurred by the indemnified party. He should also fulfil his duties towards the other party in a satisfactory manner and at a reasonable time.

9) Cannot challenge a material fact: A duty bearer cannot challenge any material fact that may affect an indemnification claim.

10) Must inform of any changes: If there is any change in the evidence or details related to an indemnification claim, then the duty-bearer must inform about it to the other party making an indemnification claim.

Rights of Indemnity Holder:

Under Section 125 of the Indian Contract Act, 1872, the rights of indemnity holder are classified into three categories which are:

1)  Damages: The holder of the indemnity agreement has a right to claim compensation from the duty-bearer in case there is damage to his property or he incurs losses as a consequence of acts and facts stated in the indemnity agreement.

2) Cost: The holder of the indemnity agreement has a right to claim payment of reasonable expenses from the amount stated in the contract.

3) Sums: The holder of the indemnity agreement has a right to claim payment of sums stated in form of a tax, fine or penalty.

Conclusion:

This article discussed the rights of indemnity holders’ under Section 125 of the Indian Contract Act, 1872. It also discussed different provisions under Indemnity law that are beneficial for all concerned parties for making an indemnification agreement.