Drafting indemnity clauses and causes of indemnity disputes

An indemnity agreement is a contract or clause in a contract that states that one party will provide financial compensation for any losses that have been caused by a second party. They will also accept liability for damages. Indemnity agreements are common in insurance. However, if one party is expected to cover more damages than the agreement states, this can cause disputes.

Here, we look in more depth at the purpose of an indemnity agreement, how such a clause is different from a guarantee, what this clause should cover and what causes disputes. We also examine the different methods and benefits of alternative dispute resolution and see how a professional legal service such as Giambrone can help you with dispute resolution.

Click on a link to that section:

Find out why it is important to include an indemnity agreement in a contract.

Read how an indemnity clause differs from a guarantee.

Find out what should be included in an indemnity clause.

Read the most common causes of indemnity clause disputes.

Read the different methods of alternative dispute resolution and their benefits.

Find out how Giambrone can help you put together an indemnity agreement.

We answer common queries on indemnity disputes.

What is the purpose of an indemnity agreement?

Indemnity clauses are used in contracts in order to assign liability. They are used in business contracts to allow one party - known as the indemnifier - to accept losses or damages which are incurred by the other party. The indemnifier will offer financial compensation in these instances, as well as accept legal liability. For example, an insurance company agrees to cover losses or damages incurred by the insured party under certain circumstances.

Indemnity agreements provide a level of security that might otherwise be hard to achieve.

How does an indemnity clause differ from a guarantee?

When it comes to an indemnity clause, it is different from a guarantee in several ways. For example, a guarantee is defined as a secondary liability. This is because there is another person who becomes liable for damages or losses. However, indemnity means that there is primary liability. An indemnity clause is more detailed and robust than a guarantee, and also more customisable to the specific circumstance.

What should an indemnity clause cover?

An indemnity clause should cover a variety of events, depending on the nature of the transaction. However, there are several common events that should normally be covered under an indemnity clause. In a business contract, these can include a breach of contract, non-compliance with relevant laws, injury, or any form of negligence. An indemnity clause should also cover losses and liabilities, as well as any potential claims made.

Do you need assistance in putting together an indemnity clause? Contact Giambrone & Partners for assistance today.

Causes of indemnity clause disputes

Indemnity clause disputes are unfortunately fairly common. If an indemnity clause has been worded badly, this can cause more issues than solutions. This can lead to confusion over what is covered and legal disputes.

If the indemnifier is requested to cover damages or losses that are not covered in the contract but this is not clear, it can lead to a long legal dispute resulting in a significant cost and time loss. There are also potential issues related to conflict of interest - for example if two parties covered by the same indemnifier are engaged in a dispute.

The different methods of dispute resolution

There are different methods of resolving an indemnity dispute. While it may be tempting to head immediately to court, this can be an expensive and long-winded process that may not end as you wish it to.

You can, in the first instance, engage in mediation. This is when the two parties engage in a calm and civil discussion about the dispute, in the presence of a mediator. The mediator will help to facilitate these discussions, and gently guide you towards resolution. As the mediator is a non-partisan party, there cannot be accusations of one side being unfairly favoured. However, any resolution must be reached by the parties, and will not be legally binding.

Similarly, an arbitrator can facilitate a discussion between two or more parties and help you reach a decision. This will not be legally binding, but the final decision will rest with the arbitrator. You will need to proceed to court to substantiate the decision and make it legally binding.

If these measures fail, then litigation may be the only way to proceed. In this case, you will present your case and the decision will be made by a judge. This is a legally binding decision and may not always fall in your favour.

Find out more about the different ways to resolve a contractual dispute here.

Do you need assistance in resolving a contractual dispute? Contact Giambrone here.

The benefits of alternative dispute resolution

If you have an arbitration clause or dispute resolution clause in your contract, this indicates that you will proceed to arbitration or mediation before progressing to litigation. The benefits of this and of choosing mediation or arbitration generally are multitudinous. You will be able to save time and stress when compared to lengthy legal proceedings, as well as have a say in the outcome you achieve. As a business, you will also be able to save money - legal proceedings going through court can be extremely difficult and expensive.

Find out more about the benefits of alternative dispute resolution here.

How can Giambrone help?

When you are looking at how best to resolve an indemnity dispute, you need qualified professionals on your side. Giambrone & Partners can help your business to resolve an indemnity dispute should one occur, and our skilled solicitors can support you with guidance on indemnity agreements and other contracts. We make it our mission to prioritise alternative dispute resolution where we can, such as arbitration, which can help to save you time and money.

Get in touch to see how we can support you.

Common queries

What can indemnity clauses cover?

Indemnity clauses can cover losses and liabilities, damages, negligence and more.

What losses are covered under the indemnity clause?

The most common kind of losses covered by the indemnity clause are direct losses, where it would be considered unfair for the indemnified party to cover the loss.

What is a conflict of interest?

A conflict of interest occurs when someone’s own interests covering their personal life may be considered damaging to their judgement.

Should the indemnity cover related parties?

The indemnity should be limited to the directly covered party only.

What is the difference between indemnity costs and standard costs?

Standard costs must be considered to be both reasonable and necessary, whereas indemnity costs must only be considered reasonable, as they cover more areas.

What are the basic principles of indemnities?

The basic principles of indemnities are that the covered party will need to be compensated for any loss, damage or liability which have been insured or otherwise covered. The indemnity is measured in terms of both money and legal liability.

How much professional indemnity insurance do you need?

In order to decide this, you will need to think about what your profession is and what you do and ensure that the indemnity insurance will cover both the cost of correcting a potential mistake and your legal costs. You should consider what the total loss of a variety of situations may be in order to reach the correct amount required.

What can your solicitors help you with?

Solicitors can help you to draw up an indemnity clause, and also deal with any potential indemnity disputes.

What is professional indemnity insurance?

Professional indemnity insurance is put in place to protect you from claims regarding negligence or breach of care/duty while carrying out your professional services.

Do indemnity costs have to be proportionate?

It is not necessary for indemnity costs to be proportionate.

Related content

Handling a retention of title dispute

Types of misrepresentation claims