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If you are still persuaded you do, how well you can articulate the risk and likely loss? If you can describe it with minute precision, all well and good — your counterparty might be minded to accept: if it is no more than a faintly discomfiting sense that [[Chicken Licken|the sky might fall on your head]], expect a stouter challenge.  
If you are still persuaded you do, how well you can articulate the risk and likely loss? If you can describe it with minute precision, all well and good — your counterparty might be minded to accept: if it is no more than a faintly discomfiting sense that [[Chicken Licken|the sky might fall on your head]], expect a stouter challenge.  


Lastly, who amongst you is best placed to manage this risk?
===What a (well-crafted) indemnity is not===
=====Indemnities are ''not'' “better” than a [[contract]]=====
An {{tag|indemnity}} is no ''better'' than a contractual claim. It ''is'' a contractual claim. It does not have a harsher accounting impact. Its [[regulatory capital|capital]] treatment is the same. You enforce it as you would a [[breach of contract]]: by suing the [[indemnifier]] for its failure to pay the indemnified amount.
 
Now. 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: prove you have the contract, prove you’ve suffered the loss and—''that’s it''. A well-crafted indemnity is therefore apt for [[summary judgment]]<ref>[[summary judgment]] is a speedy civil court process where you have have a court award your claim without out all that messy and unpleasant business mucking around calling witnesses and so on.</ref>. But careful, [[Mediocre lawyer|counsel]]: aptness for [[summary judgment]] is not a [[magic]] property of all [[indemnities]]: it depends on how well you have crafted yours.


===What a (well-crafted) indemnity is not===
=====Indemnities do ''not'' require a [[breach of contract]]. In fact they should be ''mutually exclusive''=====
=====It is ''not'' better than a [[contract]]=====
While ''failing to honour'' an [[indemnity]] claim is a [[breach of contract]], the circumstances giving rise to an [[indemnity claim]] in the first place are ''not''. No breach is required, no [[causation]] or value judgment needed to satisfy the [[indemnifier]] of your ''[[bona fide]]s''. 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]].
An {{tag|indemnity}} is no ''better'' than a contractual claim. It ''is'' a contractual claim. It does not have a harsher accounting impact. Its [[regulatory capital|capital]] treatment is the same. 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]]. But careful, [[Mediocre lawyer|counsel]]: aptness for [[summary judgment]] is not a [[magic]] property of all [[indemnities]]: it depends on how well you have crafted yours.


=====It does ''not'' require a [[breach of contract]]=====
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.
Meanwhile, note a point of profound importance. While ''failing to honour'' an [[indemnity]] claim is a [[breach of contract]], the circumstances giving rise to an [[indemnity claim]] in the first place are ''not''. No breach is required, no [[causation]] or value judgment needed to satisfy the [[indemnifier]] of your ''[[bona fide]]s''. 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.


=====It is not (necessarily) of indeterminate scope=====
=====Indemnities are ''not'' (necessarily) of indeterminate scope=====
Nor is a (well-crafted) {{tag|indemnity}} broader or of less determinate scope than any other contractual claim. A good one should have a predictable and reasonable financial consequence: It might be to reimburse taxes or similar unavoidable expenses a merchant incurs in performing the contract, that it would not, but for that contract. The [[Chicken Licken|sky should not fall in]] under the weight of a well-proportioned {{tag|indemnity}}.  
Nor is a (well-crafted) {{tag|indemnity}} broader or of less determinate scope than any other contractual claim. A good one should have a predictable and reasonable financial consequence: It might be to reimburse taxes or similar unavoidable expenses a merchant incurs in performing the contract, that it would not, but for that contract. The [[Chicken Licken|sky should not fall in]] under the weight of a well-proportioned {{tag|indemnity}}.  


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===You keep saying “''well-crafted'' [[indemnity]]”===
===You keep saying “''well-crafted'' [[indemnity]]”===
Yes, I do. This is where things have gone awry. Many latter-day [[indemnities]] are not well-crafted at all. It is common for indemnities to catch every contingency under the sun: “any and all losses, costs and damages, howsoever arising, incurred or suffered in diligent performance of the contract”. A magnanimous recipient might let the [[indemnifier]] off those losses caused by its own [[negligence, fraud or wilful default]], but that’s another story.
Yes, [[I]] do. This is where things have gone awry. Many latter-day [[indemnities]] are not well-crafted at all. It is common for indemnities to catch every contingency under the sun: “any and all losses, costs and damages, howsoever arising, incurred or suffered in diligent performance of the contract”. A magnanimous recipient might let the [[indemnifier]] off those losses caused by its own [[negligence, fraud or wilful default]], but that’s another story.


In any case, such a wide indemnity suggests your counterpart has not grasped the fundamentals of the commercial bargain: [[Indemnities]] are not meant for the ordinary costs naturally arising from one’s diligent performance of a contract — the ordinary vicissitudes of one’s day-to-day commercial existence, that is to say. That is called ''[[consideration]]''. It is why the other fellow is making a bargain with you in the first place.
In any case, such a wide indemnity suggests your counterpart has not grasped the fundamentals of the commercial bargain: [[Indemnities]] are not meant for the ordinary costs naturally arising from one’s diligent performance of a contract — the ordinary vicissitudes of one’s day-to-day commercial existence. That is called ''[[consideration]]''. It is why the other fellow is making a bargain with you in the first place. You’re meant to just pay that, and be grateful.


===What are fit topics for an indemnity then?===
===What ''are'' fit topics for an indemnity then?===
Indemnities capture unexpected and unwanted possibilities brought about by performance of the contract which ''ought'' not to arise, whose provenance is beyond the [[indemnified party]]’s control, but which ''do''.  
Indemnities capture unexpected and unwanted possibilities brought about by performance of the contract which ''ought'' not to arise, whose provenance is beyond the [[indemnified party]]’s control, but which ''do''.  


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*'''Losses caused by the [[indemnifier]]’s misbehaviour to a third party''': Events that arise though the mendacity — though not actual [[breach of contract]] — of the [[indemnifier]]. These arise where the [[indemnifier]] has given a [[third party]] an interest that, unbeknownst to [[indemnified party]], its honest performance of the [[contract]] somehow abrogates. These a reasonable [[indemnifier]] should not resist, seeing as they are within its gift to prevent.
*'''Losses caused by the [[indemnifier]]’s misbehaviour to a third party''': Events that arise though the mendacity — though not actual [[breach of contract]] — of the [[indemnifier]]. These arise where the [[indemnifier]] has given a [[third party]] an interest that, unbeknownst to [[indemnified party]], its honest performance of the [[contract]] somehow abrogates. These a reasonable [[indemnifier]] should not resist, seeing as they are within its gift to prevent.


===How is an indemnity different from a breach of contract?===
===Liability under an {{tag|indemnity}}===
{{box|The example ''par excellence'':
Since it isn't necessarily triggered by a {{tag|breach of contract}}, nor is the value of indemnity constrained by ordinary contract law principles for damages. (That is not to say you don't have to prove loss, though: beware indemnities that look like [[penalty clause]]s.)  
 
''Unexpected taxes imposed on a custodian in the course of holding securities for its client.''
 
The tax is no-one's fault. It could not be avoided. Because of the nature of the contract, it falls on the service provider, not the beneficiary of the service. It is easily quantifiable.}}
 
{{Box|'''Example''':
 
A enters a derivative contract with B. To hedge itself B, buys security X. B's investment in X is subject to an unexpected tax charge. A has indemnified B against all tax liabilities arising on its hedging activities.
*A did not breach the contract
*B does not need to (and indeed cannot) claim breach of contract,
*B can call on the indemnity to require A to make a payment equal to the tax charge under the indemnity.
*If A neglects to make the indemnity payment, B has an action in breach of contract.}}
 
===Liability under an indemnity===
Since it isn't necessarily triggered by a breach of contract, nor is the value of indemnity necessarily constrained by ordinary contract law principles for ascertaining damages. (That is not to say you don't have to prove loss, though: beware indemnities that look like [[penalty clause]]s.)  


Now we have already established that you want to reallocate this risk away from the party who would naturally bear it. That person will ask itself, as should you, could my agreeing to this indemnity, in the immortal words of Cardozo J in [https://en.wikipedia.org/wiki/Ultramares_Corp._v._Touche ''Ultramares Corporation v. Touche'']  open the floodgates leading to "liability in an indeterminate amount for an indeterminate time to an indeterminate class"?
Now we have already established that you want to reallocate this risk away from the party who would naturally bear it. That person will ask itself, as should you, could my agreeing to this indemnity, in the immortal words of Cardozo J in [https://en.wikipedia.org/wiki/Ultramares_Corp._v._Touche ''Ultramares Corporation v. Touche'']  open the floodgates leading to "liability in an indeterminate amount for an indeterminate time to an indeterminate class"?
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