Template:Liability carveouts for indemnities

An indemnity is the one time in a contract that it makes sense to exclude liability for negligence, fraud or wilful default, a contractual standard which otherwise is the product of muddy logic.

Generally the standard of conduct one must be held to in a contract is, of course, the contractual one. But where an indemnity is concerned, one party has agreed to assume liability for the other’s loss even though the indemnifier has not breached the contract or even acted foolishly in any way. And nor is the fact that indemnified party has itself performed the contract the end of it: The loss in question arises through the agency of some third party, away from the contract in which the indemnity lies. (A loss as between the two parties to the contract would be governed by the law of contract and breach and not an indemnity).

Here the eventuality is one the parties have not bargained upon, and that is beyond their control. This is just the sort of place where the courts can step in to imply reasonable boundaries on liability. A “negligence” carve out invites that.

Hence the indemnifier may seek to restrict its liability under the indemnity to compensate only losses which the beneficiary has not itself been negligent in incurring, in that tortious sense.