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Indemnity is a type of insurance compensation paid for damage or loss. When the term is used in the legal sense, it also may refer to an exemption from liability for damage. Indemnity is a contractual agreement between two parties in which one party agrees to pay for potential losses or damage caused by another party.
There are three main types of express indemnity clauses: broad form, intermediate form, and limited form.
The payment or performance bond surety assumes an obligation of its principal with the understanding that either the principal or some third party, known as an indemnitor, will indemnify or hold the surety harmless if the principal fails to fulfill the underlying bonded obligation and the surety sustains a loss.
A Surety Bond Indemnity Agreement is an agreement between the principal and the surety bond company stating the company will be indemnified if it pays out a loss on the Principals behalf due to a surety bond claim.
Indemnity is the backbone of many surety bonds. In short, indemnity compels a party to compensate another party. Regarding a surety bond, this means that the obligee has the legal right to collect from the surety if the principal of the bond fails to uphold their end of the bond.
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The indemnitor may be the bonded principal itself (i.e. the contractor), an owner or one with a financial interest in the principal, or even the spouse of an owner. Distinguished from insurance, where the insurer assumes it will sustain a loss if a covered claim occurs, the surety has no expectation of a monetary loss.
Surety bonds are instruments that create a legal obligation for one party to pay another. An indemnity bond is a specific type of surety bond thats often used in situations where someone is borrowing money.
Meaning of indemnity bond in English a legal agreement in which a financial organization promises to make a payment to an organization that has lent money if they do not get the loan back: Lenders reduce their risk by using indemnity bonds for mortgages over 70-80 % of the value of the property.