BlogIndian Contract Act 1872

Contract of Indemnity


Contract of Indemnity

Indemnity, in simple words, is protection against losses. The loss can be of money as well as goods.

Contract of Indemnity falls under Section 124 of the Indian Contract Act, 1872. According to the said section, it is a contract in which one party promises to bear the losses of another party. These losses can be caused either by the conduct of promisor himself or by the conduct of any other person as well.

The two parties to a contract of indemnity are:

Indemnifier: One who promises to bear the loss.

Indemnified: One who is insured against the loss. Also known as Indemnity holder.

When does liability of the indemnifier arise?

As soon as the indemnifier comes to know of indemnity holder’s loss, the former becomes liable to pay. In other words, the liability of indemnifier arises when the indemnified’s loss becomes absolute.

Is Indemnifier liable to return the Premium in case of no loss?

The indemnified pays some amount to indemnifier initially to shift his risks. If, fortunately, he does not happen to incur any losses, the premium needs not repayment. The premium here is a merely nominal fee to transfer the bigger risks to a third party.

Enforcement of the Contract of Indemnity

To enforce a contract of indemnity, the terms and conditions must be fulfilled. Claims of an indemnity holder include damages and other legal costs. The evaluation of these damages is based on the extent of indemnification.

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