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Under an indemnity, one party (the “indemnifier”) agrees to pay the other the “indemnified”) an agreed amount should a specified event occur during the contract.

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 exclusively 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 and the indemnifier doesn’t pay, the indemnifiee has an action in breach of contract.

And that’s about it. An indemnity gives you a right to sue where, without it, you would not have one.

In any case, indemnities should not, ever, cover losses arising from 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.

Here is why: 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. This is self-evidently true.

Do not start babbling on about how an indemnity relieves the indemnified party the burden of all that tedious mucking around establishing causation, foreseeability and so on: if the loss is that indeterminate, it is not suitable for an indemnity, and the court will require you to prove causation and foreseeability anyway. There are important limitations on one’s liability for breach of contract — questions of causation, remoteness of damage, foreseeability and proof of loss — developed over centuries in the Darwinian crucible of the common law. They are there for the very good reason that, when things turn to vanillasoß, the parties to a contract are certain to disagree about how badly they are wounded and who is at fault. This is a function of their motivated irrationality and conflicting interests.

The reason — the only reason, readers — a well-crafted indemnity is supposed to be exempt from this kind of enquiry is that it is meant to be a pre-agreed amount, so there is no need to get into foreseeability, causation, quantum and so on. You did foresee it. You did quantify it: you wrote it into the contract. Hence, if you are inclined to seek indemnification “for any loss of any type, kind or variety that the indemnified party shall on its own certification suffer” — and there is scarcely a corporate services provider out there who is not — you should not be seeking an indemnity. You should be putting on a tin hat and going with a year’s supply of tinned beans and a musket to sit in an air-raid shelter.