indemnitee

It affirms the right of an individual party to obtain insurance, not to protect the interests of the indemnitee.

Their effect was to cause the indemnifier to suffer the loss or damage caused by the indemnitee's negligence towards the indemnifier.

An indemnity is an obligation by a person (indemnitor) to provide compensation for a particular loss suffered by another person (indemnitee).

This was tantamount to an exclusion of the liability otherwise owed by the indemnitee to the indemnifier in respect of the indemnitee's negligence.

First, if the indemnifier is a consumer, then s 4 (which regulates all indemnities granted by consumers, whoever the indemnitee) subjects the clause to the test of reasonableness.

--Subsections (a) and (b) of this section do not require a prior judicial determination of the validity of the indemnitee's position as to the proceeding for which indemnification is sought.

Knowing that its defense and settlement costs are being borne by the indemnitor, the indemnitee may be encouraged to engage a more expensive legal team or pursue a riskier defense strategy than it would otherwise.

It will not let the company (indemnitee) overspend, "An arrangement where the indemnitee makes decisions about how to defend and settle the claim while the indemnitor writes the checks presents a moral hazard."

For instance, a statute may void an agreement to indemnify a construction worker as to liability for death or bodily injury incurred on an oil well, regardless of the indemnitee's negligence, without affecting the validity of an insurance contract.

However, where the indemnifier grants an indemnity to the indemnitee (under a contract between them) in respect of third party claims made against the indemnitee by reason of the indemnitee's own negligence, different considerations arise.

In the case of an indemnifier who is not a consumer, the question to be asked is whether, in the absence of the indemnity, the indemnitee would have been obliged at common law to compensate the indemnifier for the economic loss suffered as a result of having to pay out on the third party claim.

If the indemnifier is a natural person, the death or personal injury in question could either be suffered by the indemnifier himself, or by a third party who has suffered it by reason of the indemnitee's negligence and is claiming against the indemnitee in tort.

The only other type of clause which operates to shift liability is a counter-indemnity whereby the innocent party ( "indemnifier" ) indemnifies the party in default ( "indemnitee" ) for any claim made in respect of death or personal injury caused by the indemnitee's own negligence.

The situation is otherwise where there is an underlying liability owed by the indemnitee to the indemnifier, so that in the absence of the indemnity the indemnitee would be legally obliged to compensate the indemnifier for the economic loss suffered as a result of the third party claim.