Template:Indemnity for breach of contract capsule

Indemnities are never appropriate to compensate for a breach of conract. Never.

Like, never ever.

While failing to honour an indemnity claim may be a breach of contract, the circumstances giving rise to an indemnity claim in the first place are not. Indemnities address unwanted externalities that arise from faithful performance of the contract that fall on one party where equity — but not law of the contract — suggests they should fall on the other. An indemnity is simply a contractual technique to mutually reassign such an externality from one party to the other so that the law of contract does require it. That is all. If there has been a breach of contract causing a loss, you don’t need an indemnity, because the law of contract already reassigns that externality on the breaching party automatically.

No breach is required, no causation or value judgment needed to satisfy the indemnifier of your bona fides. Recovering for failure to honour a (well-crafted) indemnity is therefore straightforward: You must show the event giving rise to the indemnity has happened, that you have demanded the indemnified sum from indemnifier; and that the indemnifier has not paid it. Hence: summary judgment.

Note, also, that summary judgment is available for certain contractual breaches: Specifically, failures to pay a specified sum, where the obligation to pay can be proved by contract, and the failure to pay can be proven by affidavit. No real question of witness credibility arises.

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 you are seeking to recover is that indeterminate, it is not suitable for an indemnity. Indemnities are designed for identifiable, deterministic sums that require no judgment or evaluation to arrive at. If your indemnity claim requires that kind of thing the court will require you to prove that loss, and — if it arises from breach — the breach and its 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 — at least uncontroversially obvious — 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.