Template:Indemnity description: Difference between revisions
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Few things are more apt to excite an attorney's animal spirits than an [[indemnity]]. Why so, you might ask, for it is nothing more than a promise to pay a defined sum should pre-agreed circumstances arise? | Few things are more apt to excite an attorney's animal spirits than an [[indemnity]]. Why so, you might ask, for it is nothing more than a promise to pay a defined sum should pre-agreed circumstances arise? | ||
Indeed so, if used as the Lord* intended. An indemnity is a sensible way — perhaps the only way — to allocate the risks of externalities two merchants might encounter | Indeed so, if used as the Lord* intended. An indemnity is a sensible way — perhaps the only way — to allocate the risks of externalities two merchants might encounter when providing one another goods and services. | ||
{{box|An indemnity is nothing more than a contractual promise to pay a defined sum should a pre-agreed circumstance arise.}} | {{box|An indemnity is nothing more than a contractual promise to pay a defined sum should a pre-agreed circumstance arise.}} | ||
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====What an indemnity is not==== | ====What an indemnity is not==== | ||
An {{tag|indemnity}} is no ''better'' than a contractual claim. It ''is'' a contractual claim. It does not have a harsher accounting or [[regulatory capital|capital]] impact. You enforce it as you would a breach of contract: by suing the | An {{tag|indemnity}} is no ''better'' than a contractual claim. It ''is'' a contractual claim. It does not have a harsher accounting or [[regulatory capital|capital]] impact. You enforce it as you would a breach of contract: by suing the [[indemnifier]] for its failure to pay the indemnified amount. Since (if well crafted) it is a claim to pay a pre-defined (or at any rate [[deterministic]]) sum, proving your claim is not hard and a well-crafted indemnity is apt for [[summary judgment]]. | ||
Note a point of profound importance. While the failure to honour an indemnity is a breach of contract; the occurrence of circumstances permitting a claim under one is not. | Note a point of profound importance. While the failure to honour an indemnity is a breach of contract; the occurrence of circumstances permitting a claim under one is not. | ||
To claim under a (well-crafted) indemnity, therefore, | To claim under a (well-crafted) indemnity, therefore, one need allege no breach and prove no loss. No causation is required, no value judgment needed to satisfy the [[indemnifier]] of your bona fides: all you need prove is: | ||
*There is an [[indemnity]] | *There is an [[indemnity]] | ||
*The indemnified event has happened; | *The [[indemnified event]] has happened; | ||
*You have calculated the indemnified sum. | *You have calculated the [[indemnified sum]]. | ||
Recovering for a failure to honour a (well-crafted) indemnity is also straightforward: You must | Recovering for a failure to honour a (well-crafted) indemnity is also straightforward: You must attest to the above, and the following: | ||
*You have demanded the indemnified sum from [[indemnifier]]; and | *You have demanded the [[indemnified sum]] from [[indemnifier]]; and | ||
*The [[indemnifier]] has not paid it. | *The [[indemnifier]] has not paid it. | ||
Nor is | Nor is a (well-crafted) {{tag|indemnity}} broader or of less determinate scope than any other contractual claim. It might be "taxes incurred in performing our services to you": an unavoidable expense that would not arise but for the contract, that has not been priced in, and which has a predictable financial consequence. Indemnities are precision tools for narrow risks, not weapons of mass destruction. The sky should not fall in under the weight of a well-proportioned {{tag|indemnity}}. | ||
This is where things have gone awry. Many latter-day indemnities are not articulated this way. It is common for indemnities to catch every contingency under the sun. They shouldn't. | |||
====How is an indemnity different from a breach of contract?==== | ====How is an indemnity different from a breach of contract?==== | ||