{"id":206612,"date":"2021-06-17T19:15:19","date_gmt":"2021-06-17T06:15:19","guid":{"rendered":"https:\/\/legalvision.co.nz\/?p=206612"},"modified":"2026-03-05T15:19:06","modified_gmt":"2026-03-05T02:19:06","slug":"agree-to-contractual-indemnity","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/commercial-contracts\/agree-to-contractual-indemnity\/","title":{"rendered":"When Should You Agree to Provide a Contractual Indemnity in NZ?"},"content":{"rendered":"\n<p><span style=\"font-weight: 400\">An indemnity clause is a common sight that is seen on most commercial contracts. It allows a party (\u2018the indemnified party\u2019) to be compensated by the other (\u2018the indemnifier\u2019) if they suffer loss. An indemnity is often called a \u2018hold harmless clause\u2019.<\/span> This is because<span style=\"font-weight: 400\"> the one party to the contract agrees to hold the other party harmless and must cover any losses. The issue with indemnities is that they can have a broad scope of liability. <\/span>This<span style=\"font-weight: 400\"> means that the indemnifier could be paying a large sum of costs to the indemnified party. This is why you should be careful when providing a contractual indemnity and limit its scope where possible. This article will outline when you should be and should not be providing indemnities.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">What is an Indemnity?<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">An indemnity is a legal obligation to cover the costs to another party if they were to incur a loss during the contract. A contractual indemnity is usually activated due to a \u2018trigger event\u2019 that causes the party to cover some sort of loss. The trigger event can be:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>a <span style=\"font-weight: 400\">breach of contract<\/span>; or <\/li>\n\n\n\n<li><span style=\"font-weight: 400\">some fault on behalf of the party.<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Breach of Contract&nbsp;<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">Usually, a breach of contract claim will cover a party for a loss suffered. However, a breach of contract claim is only applicable where the other party causes the loss because they breached the contract. An indemnity is broader and allows for parties to be compensated if a loss is incurred: <\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400\">through the actions of a third party; or <\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400\">because of some other circumstance that does not require a breach of contract. <\/span><\/li>\n<\/ul>\n\n\n\n<div class=\"box box--icon box--info\">\n<p>Therefore, an indemnity is safer insurance for those who want to be compensated for loss during a contract.<\/p>\n<\/div>\n\n\n    <div class=\"my-7 lg:my-10 border-y-2 border-gray-100 py-7 lg:py-10 flex flex-col sm:flex-row items-start gap-10\">\n                    <img decoding=\"async\" class=\"w-52 mx-auto my-0! rounded\" src=\"https:\/\/img.legalvision.com.au\/wp-content\/uploads\/sites\/2\/2021\/12\/22115855\/cytonn-photography-GJao3ZTX9gU-unsplash-e1640129621597.jpg\" alt=\"Front page of publication\"\n                 loading=\"lazy\" width=\"208\" height=\"298\">\n                <section>\n            <div class=\"text-2xl font-bold\">Commercial Contracts Checklist<\/div>\n            <div class=\"body-text\">\n                <p>To protect your business, ensure supplier contracts meet your business\u2019 needs. 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This is because an indemnity can cover a broad scope. Therefore, you should be careful when agreeing to provide an indemnity.<\/span> The best approach would be trying to limit the scope of an indemnity. You can mitigate your exposure by clearly defining: <\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>the specific risks or events covered; <\/li>\n\n\n\n<li>who is covered; and <\/li>\n\n\n\n<li>how long the indemnity goes for. <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Lesser Bargaining Position<\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">The first situation you may be required to provide an indemnity is when you are in a lesser bargaining position than your counterpart. In that situation, you may be more inclined to provide an indemnity if your main goal is to get the contract signed and performed. The party in the stronger negotiating position is more likely able to dictate the terms of your contract. However, it is still vital that you weigh up the costs of signing a contractual indemnity. <\/span>Y<span style=\"font-weight: 400\">ou will want to make sure that the benefits of the contract still outweigh the drawbacks.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Breach of Contract Claim<\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">Another situation where a contractual indemnity may be required is when a <a href=\"https:\/\/legalvision.co.nz\/commercial-contracts\/breach-contract\/\">breach of contract<\/a> claim may not reap the same compensation as an indemnity. A breach of contract claim may not satisfy the loss that the other party may incur. This is why they may insist that an indemnity clause is added to cover their bases<\/span>, , ensuring that they are fully compensated regardless of the circumstances. An indemnity can also provide quicker financial protection than lengthy litigation processes.<\/p>\n\n\n\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400\">If you are in a position where the contract contains a high amount of risk, then an indemnity may agreed on to cover any loss. This could include situations where there is a significant potential for financial or reputational damage, or where the breach could lead to third-party claims. By agreeing to indemnify, you are essentially offering assurance that you will cover the costs in case things go wrong.\n<\/span><\/p>\n<\/div>\n\n\n\n<h3 class=\"wp-block-heading\">When Should You Agree?<\/h3>\n\n\n\n<p><span style=\"font-weight: 400\">You should only agree to provide an indemnity if you can afford to pay up in the case that you are required to. If you cannot afford to cover costs if the indemnified party suffers damages, you may be liable to court proceedings. <\/span>This<span style=\"font-weight: 400\"> could leave you in a worse position than when you started.<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">You can always <a href=\"https:\/\/legalvision.co.nz\/commercial-contracts\/limit-indemnities-in-contracts\/\">limit the scope<\/a> of liability that an <a href=\"https:\/\/legalvision.co.nz\/commercial-contracts\/risks-indemnity-clauses\/\">indemnity clause<\/a> covers. For example, you could alter the clause to disallow any liability being put on you by a third party. You could also set a limit on the amount that you have to compensate the other party.<\/span> Additionally, you can define specific events or circumstances that trigger the indemnity obligation. This ensures that you are not held accountable for situations beyond your control or for disproportionate damages.<\/p>\n\n\n\n<div  class=\"box box--icon box--star\">\n    <p><span style=\"font-weight: 400\">It is also important to note some insurance policies will not cover you if you agree to a wide reaching indemnity. Therefore it is important to understand your insurance cover, before agreeing to any indemnity. <\/span><\/p>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n\n\n\n<p><span style=\"font-weight: 400\">An indemnity is a helpful clause to close contracts out as it encourages the other party to sign them. This is because they are covered in the case of a loss caused during the duration of the contract. However, if you are the indemnifier, it is essential to know when and when you should not provide an indemnity. You should only provide one if you can afford to do so; otherwise, you could risk losing a lot more than you initially hoped. It is a good idea to limit the scope of the indemnity so that you are not liable to put for losses that are not directly caused by the contract. This could be a third party or monetary limit.&nbsp;<\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">All in all, if you can avoid having to provide an indemnity, you should do so. However, if you cannot get around it, then make sure you know your obligations. <\/span><\/p>\n\n\n\n<p><span style=\"font-weight: 400\">If you need any legal assistance with indemnity clauses, <\/span>LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced <a href=\"https:\/\/legalvision.co.nz\/contract-lawyers-lp\" id=\"https:\/\/legalvision.co.nz\/contract-lawyers-lp\">contract lawyers<\/a> help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision\u2019s legal membership, call <a href=\"tel:+64800005570\" class=\"AVANSERnumber dynamic-number\">0800 005 570<\/a> or <a href=\"https:\/\/legalvision.co.nz\/membership\/\" id=\"https:\/\/legalvision.co.nz\/membership\/\" target=\"_blank\" rel=\"noreferrer noopener\">visit our membership page<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1623909329015\"><strong class=\"schema-faq-question\">Are indemnity clauses required on every contract?<\/strong> <p class=\"schema-faq-answer\">No, they only appear if they are agreed between the two parties. However, they are commonplace in a commercial contract.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1623909337443\"><strong class=\"schema-faq-question\">How risky can indemnity clauses be?<\/strong> <p class=\"schema-faq-answer\">If they are not limited, then they can be extremely risky as the amount of compensation you could be required to pay may be significantly high.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1623909344989\"><strong class=\"schema-faq-question\">Can I get out of an indemnity?<\/strong> <p class=\"schema-faq-answer\">You can only get out of an indemnity after you have signed the contract with the permission of the other party.\u00a0<\/p> <\/div> <\/div>\n","protected":false},"excerpt":{"rendered":"<p>An indemnity clause is a common sight that is seen on most commercial contracts. It allows a party (\u2018the indemnified party\u2019) to be compensated by the other (\u2018the indemnifier\u2019) if they suffer loss. An indemnity is often called a \u2018hold harmless clause\u2019. This is because the one party to the contract agrees to hold the<a href=\"https:\/\/legalvision.co.nz\/commercial-contracts\/agree-to-contractual-indemnity\/\">Continue reading <span class=\"sr-only\">&#8220;When Should You Agree to Provide a Contractual Indemnity in NZ?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13496,"featured_media":201799,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"224293,206102,225824,224012,218622,224316","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[3],"tags":[242,629,682,884],"class_list":["post-206612","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-contracts","tag-breach-of-contract","tag-signed-contract","tag-costs","tag-indemnity"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>When to Agree to Provide a Contractual Indemnity | LegalVision NZ<\/title>\n<meta name=\"description\" content=\"You should be careful when providing indemnities. 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However, they are commonplace in a commercial contract.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/commercial-contracts\/agree-to-contractual-indemnity\/#faq-question-1623909337443","name":"How risky can indemnity clauses be?","acceptedAnswer":{"@type":"Answer","text":"If they are not limited, then they can be extremely risky as the amount of compensation you could be required to pay may be significantly high.","inLanguage":"en-NZ"},"inLanguage":"en-NZ"},{"@type":"Question","@id":"https:\/\/legalvision.co.nz\/commercial-contracts\/agree-to-contractual-indemnity\/#faq-question-1623909344989","name":"Can I get out of an indemnity?","acceptedAnswer":{"@type":"Answer","text":"You can only get out of an indemnity after you have signed the contract with the permission of the other party.\u00a0","inLanguage":"en-NZ"},"inLanguage":"en-NZ"}]}},"_links":{"self":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/206612","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/users\/13496"}],"replies":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/comments?post=206612"}],"version-history":[{"count":8,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/206612\/revisions"}],"predecessor-version":[{"id":230117,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/posts\/206612\/revisions\/230117"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/media\/201799"}],"wp:attachment":[{"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/media?parent=206612"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/categories?post=206612"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalvision.co.nz\/api\/wp\/v2\/tags?post=206612"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}