What is an Indemnity Bond?
The most common type of indemnity insurance is a surety bond. An indemnity clause is standard in the surety bond industry however, each bonding company has different language for their indemnity agreement.
An indemnity plan or clause states that the principal is responsible for reimbursement for claims and attorney’s fees the insurance company paid on behalf of the principal. Most indemnity bonds are surety bonds with specific terms and conditions related to how and when the surety may pay an established dollar figure on behalf of the principal for failure to perform.
Indemnity letters (or better known as indemnity agreements) are used according to the letter. If one party fails to fulfill a contract it agrees to compensate the other party. The purpose of a letter of indemnity is to reduce risk in a contract and associated transactions by ensuring that there is a process in place for recovering a claim.
An example of indemnity insurance would be a Sheriff’s Indemnity bond. If a sheriff is charged with serving a writ to seize property or take possession of property, the sheriff is entitled to request an Indemnity bond from the plaintiff which would indemnify the sheriff from claims or damages from the defendant, who may claim the sheriff seized the wrong property. It also protects the sheriff should the writ for collection be proven invalid.