Employer’s liability: What is Indemnity & What are the exceptions available?
Published on: 2018/08/02
This article acts like a checklist, which will help you in reviewing the indemnity clause in a contract
Employer’s liability. Indemnity
Indemnity is making good of the losses incurred. In other words, indemnity is a contractual obligation, where one party (indemnifier) has to compensate the losses incurred by the other party (Indemnitor) arising out of any act of the Indemnitor.
Generally, indemnity agreement includes:
- Indemnitor – the person promising to minimize the loss
- Indemnitee – the person seeking protection against losses
Insurance agreements are mostly based on the indemnity clause. The contract of insurance has indemnity clauses explaining the extent of coverage, type of coverage, etc. This varies with the type of insurance. Indemnity agreement typically has a period of indemnity which specifies the period of validity of the agreement.
An indemnity agreement is common between a company and an individual, or a company and government or between two or more countries.
Essentials of an indemnity agreement
For a contract to be legally termed as an indemnity agreement, it must have two parties and there should be an agreement between them. In the agreement, one party (the promisor) should have agreed to save the other party (promisee) from any loss. The loss could be because of the conduct of the person who promised or promisor or any other party.
Indemnity Vs Guarantee
A guarantee is an assurance given by one party to the other that he will fulfill the promise or obligation, in case of any default by a third party. Unlike indemnity agreement, the contract of guarantee has three parties, the principal debtor, the creditor, and the surety. The main purpose of a guarantee agreement is to give assurance to the promisee.
Indemnity and employer’s liability
Indemnity agreement plays a key role in the employer’s liability arising from fatality, or disease or injury to employees resulting from any conditions at the workplace or nature of the job. In many countries, it is mandatory for employers to have such insurance. Compensation may include the financial expenses incurred, loss of earnings, pain, and suffering.
Exceptions to indemnity
Indemnity agreement includes an exclusion clause. The main purpose of having an exclusion clause is to protect the party from responsibility if there is a breach of contract. This will protect the Indemnitor from any responsibility arising out of a specific event and not entirely exclude all responsibilities.
Liability clause in an indemnity clause explains the extent of liability of the Indemnitor. The Indemnitor is not totally excluded from the liability but the liability is limited.