Template:Indemnitycapsule: Difference between revisions

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Under an [[indemnity]] one party agrees to reimburse the other for specified losses it incurs in performing the {{tag|contract}}, even though they don’t arise from [[breach of contract]]. This is a fair allocation of loss if one party may incur definable losses which, [[but for]] its obligations to the indemnifying party under the contract, it would not. For example, a retrospective [[tax]] imposed unexpectedly upon a custodian by dint of its holding a client asset. But that is much more unusual that the incidence of an unnecessary [[indemnity]] in a standard form {{t|contract}}. Most of the time the remedies developed over centuries of the [[common law]] of {{t|contract}} do just fine. Since [[indemnities]] reallocate losses away from those on whom they would naturally fall, and are apt to short-circuit sensible limitations on contractual liability (also developed over said centuries), one should resist [[indemnities]] where they are not absolutely necessary. Which is most of the time.
Under an [[indemnity]], one party agrees to pay the other an agreed amount should a certain event occur during the {{t|contract}}.<ref>When you put it like that it sounds rather like a {{t|derivative}}, doesn’t it?</ref>
 
The “events” covered by an {{t|indemnity}} are usually unexpected costs and expenses the [[indemnified party]] incurs while performing obligations under the {{t|contract}}, the benefits of which accrue to the [[indemnifying party]]: things like [[tax]] charges levied on a custodian relating to assets it holds for its clients. Without an indemnity, the party incurring these costs would just have to wear them. This would be a windfall for the benefiting party.
 
An {{t|indemnity}} thus creates a payment obligation under the {{t|contract}} where one would not otherwise exist. If the indemnified event occurs, the indemnified party claims on the indemnity and the indemnifying party doesn’t pay, the indemnified party has an action in breach of contract. It can sue.
 
And that’s about it. an {{isdaprov|indemnity}} gives you a right of suit where, without it, you would not have one.
In any case, '''[[indemnities]] should not, ''ever'', cover losses arising from the counterparty’s [[breach of contract]]'''. Like, ''ever''. Anyone who tells you anything different — and in this old salt’s long and grim experience, many people who should know far better will — is, [[for the time being]], [[without limitation]] and [[notwithstanding anything to the contrary in the foregoing contained]], a ''moron''.  
 
For two reasons: Firstly, if the other guy has breached the contract, [[Q.E.D.]] ''you have a right of action under the {{t|contract}}''. You don’t need an {{t|indemnity}} to give you a right to sue. This is self-evidently true. Secondly, there are limitations on a party’s liability for [[breach of contract]] — questions of [[causation]], [[remoteness of damage]], [[foreseeability]] and proof of [[loss]] — developed over said centuries in the Darwinian crucible of the [[common law]] — that are there for very good reasons, and about which the parties are certain to disagree vigorously. An indemnity is meant to be a pre-agreed amount, so quite unsuitable for a contractual damages. There are those — as above, they are morons — who believe that overlaying a right to sue for breach with an indemnity will somehow subvert the need for adversarial inquiry into the breach. It won’t.

Revision as of 08:51, 1 August 2019

Under an indemnity, one party agrees to pay the other an agreed amount should a certain event occur during the contract.[1]

The “events” covered by an indemnity are usually unexpected costs and expenses the indemnified party incurs while performing obligations under the contract, the benefits of which accrue to the indemnifying party: things like tax charges levied on a custodian relating to assets it holds for its clients. Without an indemnity, the party incurring these costs would just have to wear them. This would be a windfall for the benefiting party.

An indemnity thus creates a payment obligation under the contract where one would not otherwise exist. If the indemnified event occurs, the indemnified party claims on the indemnity and the indemnifying party doesn’t pay, the indemnified party has an action in breach of contract. It can sue.

And that’s about it. an indemnity gives you a right of suit where, without it, you would not have one.

In any case, indemnities should not, ever, cover losses arising from the counterparty’s breach of contract. Like, ever. Anyone who tells you anything different — and in this old salt’s long and grim experience, many people who should know far better will — is, for the time being, without limitation and notwithstanding anything to the contrary in the foregoing contained, a moron.

For two reasons: Firstly, if the other guy has breached the contract, Q.E.D. you have a right of action under the contract. You don’t need an indemnity to give you a right to sue. This is self-evidently true. Secondly, there are limitations on a party’s liability for breach of contract — questions of causation, remoteness of damage, foreseeability and proof of loss — developed over said centuries in the Darwinian crucible of the common law — that are there for very good reasons, and about which the parties are certain to disagree vigorously. An indemnity is meant to be a pre-agreed amount, so quite unsuitable for a contractual damages. There are those — as above, they are morons — who believe that overlaying a right to sue for breach with an indemnity will somehow subvert the need for adversarial inquiry into the breach. It won’t.

  1. ↑ When you put it like that it sounds rather like a derivative, doesn’t it?
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