An indemnity agreement allows a party who would ordinarily be legally responsible for loss or damage to avoid that responsibility. For example, a contractor working for a company may require that company to indemnify them in respect of claims which exceed the amount they are being paid by the company under the contract for their services.
Indemnity insurance is insurance in respect of advice, services or expertise. A professional will take out indemnity insurance so that in the event of his work causing damage or loss, the insurance company will pay the compensation. It is always a good idea to check that a professional has indemnity insurance in place in case a claim arises.
It should be assumed that a properly drafted indemnity clause in a contract will be legally binding. However under certain circumstances it is possible that an indemnity agreement could be subject to legal challenge. As a rule, the indemnity clause should carefully detail exactly what is covered and avoid ambiguity.
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