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An agreement by one person (X) to pay to another (Y) sums that are owed, or may become owed, to him by a third person (Z). It is not conditional on the third person defaulting on the payment, i.e. Y can sue X without first demanding payment from Z. If it is conditional on the third person's default (i.e. if Z remains the principal debtor and must be sued for the money first) it is not an indemnity but a guarantee. Unlike a guarantee, an indemnity need not be evidenced in writing. In many commercial contracts a party will indemnity another, often for liability from third-party claims such as breach of intellectual property rights. There is no duty to mitigate loss when indemnifying and the class of loss is wider, the amount of money recoverable is larger, and the ease of recovery is greater than where there is simply a damages claim for breach of a warranty in a commercial agreement.

An indemnity insurance policy is taken out for the benefit of a mortgagee (lender) when a high proportion (often 80%) of the purchase price for a domestic property is borrowed. Such indemnity policies have been held by the courts not normally to be for the benefit of the mortgagor (borrower), although the mortgagor pays the premiums on the policy; only the mortgagee can make a claim. See also insurance.

Subjects: Law — Economics.

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