Indemnities - An overview
An indemnity is an obligation to compensate someone for loss or damage by making a monetary payment. An indemnity is not the same as a right to sue someone for damages for breach of contract. You shouldn’t give an indemnity easily or lightly. This is because with an indemnity:
- the duty to mitigate does not apply - so the losses are likely to be higher than under a claim for damages;
- the range of losses is likely to be much wider. In accordance with Hadley v Baxendale the usual rule is that a claimant will not be able to recover losses unless they arise naturally according to the normal course of events or if the loss was in the reasonable contemplation of the parties. The courts, however, may interpret the word ‘indemnity’ as an obligation to pay all losses suffered whether or not the loss was in the reasonable contemplation of the parties;
- the claimant only needs to establish that the event triggering the obligation to pay the indemnity has occurred. In an action for damages for breach of contract, it is up to the claimant to establish that both a breach of contract has occurred and that the damages being claimed have, in fact, been suffered. So, it’s far easier to make a claim under an indemnity.
Posted on 04/02/2015 by Ortolan
