Introduction to contract of Indemnity:
You might be aware of the basic rule that whoever harms or causes injury to
another person has to pay the damages or costs to the injured person. The
contract of Indemnity works on the same principle. Indemnity is a kind of
compensation that protects you from any potential losses. In it's broadest
sense, it refers to the payment of money to a person who has lost money, goods
or other property due to the error of third party.
This concept of Indemnity is also incorporated in English law.
Meaning of Indemnity:
According to the definition given by Halsbury,the term "indemnity" is a contract
that expressly or impliedly protects a person who entered into a contract.
The word indemnity is derived from the Latin word "indemnity" which means
freedom from loss.
According to dictionary meaning it means protection against any kind of
loss,expense etc.in the form of a promise to pay for those losses.
X contracts to indemnify Y against the consequences of any
legal proceedings that Q may bring against Y for a certain sum of money.This
contract or promise is known as a contract of Indemnity.
Contract of Indemnity: An overview
The word indemnity has been derived from the Latin term "indemnis" which means
unhurt or free from loss.The fundamental idea behind an indemnity is to transfer
some or all of the liability from one party to another.
This means that one party to the contract ,referred to as the "indemnifier" or
"indemnifying party", promises to protect another party, referred to as the
"indemnity holder" or "indemnified party".
As per the Oxford dictionary, "Security from damage,loss or penalty".Indemnity
Contracts and contracts for insurance are extremely similar. In an insurance
contract, the insurer pledges or promises to make up in the form of compensation
for the insured's losses.ln return ,he receives consideration in the form of a
premium.These kinds of transactions are not governed by the Contract Act.
This is so because legislation like the Insurance Act has provisions
specifically for insurance contracts.
The definition of Contract of Indemnity has been given in section 124 of Indian
"An agreement by which one party promises to save the other from loss caused to
him by the conduct of the promisor himself or by the lead of someone else, is
classified as "contract of Indemnity."
Parties to a Contract of Indemnity:
In a contract of Indemnity,there are two parties.
A person who promises to indemnify or pay for the losses is known as
A person for whom such a promise is made is known as indemnified or
A and B have a contract in which B promises to deliver goods to A for Rs.10,000
per month.C promises B that he will pay for the loss that will be suffered by
him due to A.Here C and B are in a contract of Indemnity,where B is the
indemnity holder and C is the indemnifier.
All insurances except personal accident insurance come in the scope of
Indemnity.It is an absolute promise to indemnify the insured.
An insurance policy that compensate a party for any accidental damages or losses
up to a certain limit usually the value of the loss of itself is known as
Essentials to a contract of Indemnity:
Objectives and nature of contract of Indemnity:
- There must be two parties.
- One of the parties must promise the other to pay for the loss incurred.
- The contract may be expressed or implied.
- It must satisfy the essentials of a valid contract.
The purpose of entering into a contract of indemnification is to safeguard the
promise from unfroseen losses.Parties may directly impose their own conditions
in such a contract.
A contract of Indemnity has a contingent nature and it mainly provides a
safeguard provisions for potential risks and uncertainties.
A contract of Indemnity is essential because a party may not be able to command
all apparent aspects of the performance of a promise.
Position of contract of Indemnity in England:
The word "Indemnity" is used in a wider sense under English law.It includes a
contract or promise to save a person from losses caused by humans , agencies or
any other event like accidents that are not under the control of any person.
It also identifies contract of insurance other than life insurance as contract
of Indemnity.On the other hand , in the Indian context ,the contract of
Indemnity does not specifically recognise a contract of insurance under
Position in India:
In India , Indemnity has been defined under section 124 of Indian Contract Act
Acc. to the section,it is a contract in which a party makes a promise to saves
others from any kind of loss due to the actions of the promisor himself or any
This definition is only limited to the losses caused by the actions of humans or
agencies and does not include losses that are caused due to events that can't be
controlled or forseen by any person, as stated in the case of Moreshwar
It can be said that the contract of Indemnity in India does not include a
contract of insurance within its ambit.
United India Insurance company v/s Aman Singh Munshilal
In this case ,goods were stored in godowns ,from where they had to be carried to
their destination after some time. While in storage,the goods were destroyed by
It was held that the goods were destroyed during transit and the insurer must
pay as the contract of insurer.
Rights Of Indemnity Holder:
The promisee in a contract of Indemnity acting within the scope of his
authority is entitled to recover from the promisor:
Some case laws on contract of Indemnity:
- All damages.
- All Costs.
- All Sums.
- Dugdale v/s Lovering
In this case, the plaintiff was in possession of certain trucks, which were
claimed both by the defendant and K.P Colliery .The defendant demanded
delivery of the trucks. As the plaintiff was aware that the ownership of the
trucks was claimed by both the defendant and K.P Colliery, the plaintiff
asked for an indemnity bond from the defendant.
A reply was received by the plaintiff which only demanded delivery and did
not mention any Indemnity bond. After which the plaintiff delivered the
trucks to the defendant. Suit for Indemnity was filed by the plaintiff
against the defendant and K.P Colliery.
It was held that there is no express contract of Indemnity, there is an
implied contract of Indemnity. Defendant was liable to indemnify the
plaintiff as the indemnity bond led to the creation of an implied promise.
- Chand Bibi v/s Santosh Kumar Pal
In this case,the defendant's father ,while acquiring specific
property,promised to pay off the plaintiff's mortgage obligation and
indemnify him if they were proven accountable for the debt. The plaintiff
sued the defendant's father to enforce the agreement when the defendant's
father failed to pay off the mortgage obligation. The court took into
consideration the fact that the plaintiff has not yet suffered any loss for
which he should be compensated.
It was held that the plaintiff has not suffered any losses and that the
suit was premature so far as the cause of action on Indemnity was concerned.