Contract of indemnity is a contract in which one party promise to pay the amount of loss causes by another. A contract of indemnity has been defined under section 124 follows:
“A contract by which one party promises to save the other from caused to him by the conduct of the promisor himself or by the conduct of any other person” but in English low contract indemnity means a promise to save a person from the harmful’ consequences of an act.”
From the above definition, we find that a contract of indemnity direct engagement between two parties whereby one party promises to save another party from any loss caused to him by any proceeding taken by the promisor himself or by the third party.
See Also: What is Breach of Contract
The contracts of insurance are the common examples of a contract of indemnity.
Example of Contract of Indemnity
A contract to indemnify B against the consequences of any proceeding, which X may take against B in respect of certain sum $3000.
Such as: A got his car insured against any sort of accidentally lost for a premium of $30000 for one year.
After insurance, a car got accident which caused loss of $100000. The insurance company had to pay the Joss. It is an example of a contract of indemnity.
Parties to the Contract of Indemnity
There are two parties to the contract of indemnity and they are as follow.
Indemnifier
The person giving the indemnity is called Indemnifier. He is a person who promises to save from loss, which occurred due to his conduct of due to the conduct of any other person.
For example, and Insurance Company is indemnifier in case of a contract of insurance.
Indemnity holder
The person for whom or for whose protection indemnity IS given IS called indemnity holder. For example, the person whose property is insured by the insurance company.
See Also: What is Acceptance of Proposal
Rights of Indemnity Holder
The indemnity holder has the following rights against the contract;
Recovery of loss
The indemnity holder has a right to recover all the losses from the indemnifier, which has been promised to pay under the contract.
Illustration: A car insured with the insurance company against loss due A’s car gets accident. Now A has a right to recover the loss company suffered by him due to this accident.
Recovery of damage
The indemnity holder has a right to recover all the damages from the indemnifier which he has to pay in a suit by third party related to subject matter of the indemnity and indemnifier has promised under the contract to compensate him.
Illustration: A has got insured his cat with insurance company and company has promised to pay any loss suffered by A due to the insured car.
B is injured by A’s car and A has to pay $10000 to B under court’s order. Now A has right to recover the amount of damage form the insurance company.
Recovery of cost of suit
The indemnity holder has a right to recover Ali the costs, which he has to spend on bringing or defending any suit related to indemnity with the permission of the indemnifier.
Illustration: A got his car insured with an insurance company against all sort of accidental loss.
A’s car got an accident with B’s truck and A has to spend $1000 in order to sue against B for the recovery of cars damages behalf of the insurance company.
Now A Will be entitled to recover cost Sufi as well as damages from the Insurance company.
Recovery of cost of compromise
The Indemnity holder is entitled to recover the sum of more paid by him for any compromise made in case of any suit by third provided that It IS not contrary to such contract.
Illustration: A got his car insured with the insurance company and the insurance company has promised to compensate A for losses or damages suffered by A due to Insured car A’s car got accident with B’s car and in an act taken by B, A has to compose by paying $5000 to B.
Now A is entitled to recover this cost of compromise form the insurance company.
Right of Indemnifier
The contract act is silent about the rights of indemnifier in a contract of Indemnity.
But it is assumed that under such contract, the indemnifier has the same rights as the surety has according to section 140 and 141 in a contract of guarantee.
See Also: Essentials Of a Valid Offer
So, the indemnifier has all the rights which the creditor has against the principal debtor and is entitled to the benefits of every security which the creditor has against the principal debtor whether he knows about such security or not
For Example:
A gets his car insured with the insurance company against an annual premium of $20000 for all sort of accidental Josses Now Insurance company (indemnifier) has a legal right to get $20000 from A, otherwise, a company will not be responsible for any sort of loss.
