What is the meaning of indemnity in a contract?
Indemnity is a type of legal protection included in contracts to protect the parties from any financial losses they may suffer if something goes wrong during the business transaction. It is an agreement between two or more parties to which one party agrees to be responsible for any financial losses the other party may incur. In Rhode Island, indemnity clauses are regulated by Rhode Island General Laws (“RI Gen. Laws”) §10-1-14. Indemnity clauses must be specifically worded in contracts and clearly stipulate the obligations of the indemnifying party and the losses for which they are responsible. They can be drafted in a variety of different ways, but they must be drafted in a way that allows for the parties to determine the scope of the indemnity or the specific losses it covers. For example, the indemnity clause might cover only the losses resulting from the negligent or wrongful actions of either party, whereas other clauses may cover any losses incurred regardless of who is responsible. In Rhode Island, indemnity clauses must be in writing and be signed by both parties. Furthermore, indemnity clauses must be reasonable and tailored to the specific facts of the contract. In other words, the indemnity clause must be specific enough to clearly identify what losses are covered by the indemnity and how the indemnifying party is expected to handle those losses. Finally, Rhode Island courts may invalidate any indemnity clauses that allow for unlimited liability for the indemnifying party.
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