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Indemnity Agreement

An indemnity agreement is an undertaking from one person to another in which financial responsibility is decided.

An indemnity is a security against loss, for example a motor vehicle insurance policy is an indemnity agreement. In the policy document the insurer promises to pay certain costs in the event that the vehicle is stolen or involved in an accident. Thus the financial responsibility for the potential loss is shifted to the insurer. In effect one party (the indemnitor) is saying to the other party (the indemnitee) I will pay this debt and ensure that you don’t experience hardship as a result of certain events or my failure to do what I promised to do.