What is the Difference Between Liability and Indemnity?
🆚 Go to Comparative Table 🆚The main difference between liability and indemnity lies in their purpose and scope of coverage.
Liability refers to the legal responsibility of a party for the damages or losses incurred by another party due to a breach of contract or negligence. Liability clauses in contracts typically limit damages to a portion of the fee or transaction, and they are subject to causation, remoteness, and other legal restrictions. Damages under a liability clause can only be claimed when there is a breach of contract, and the damages are limited by the contract.
Indemnity, on the other hand, is an agreement to transfer the responsibility of compensating for damages or losses from one party to another. Indemnification clauses in contracts can cover a broader scope of loss and may not be subject to the same legal restrictions as liability clauses. Indemnity clauses can also be used to recover consequential losses, which are not ordinarily covered under liability clauses. Furthermore, indemnity can be claimed even before the actual loss has occurred, whereas damages can only be claimed for a loss that has already occurred upon breach of contract.
In summary:
- Liability clauses establish limits on the liability of a party in case of a breach of contract or negligence and are subject to various legal restrictions.
- Indemnity clauses transfer the responsibility of compensating for damages or losses from one party to another and can cover a broader scope of loss with fewer legal restrictions.
Comparative Table: Liability vs Indemnity
The difference between liability and indemnity lies in their definitions, legal implications, and how they are applied in contracts and insurance policies. Here is a summary of their differences:
| Liability | Indemnity |
|---|---|
| Liability refers to the legal responsibility for harm or damage caused to another party, and it can arise from various sources such as negligence, breach of contract, or torts.. | Indemnity is a contractual agreement between two parties, where one party (the indemnifier) promises to compensate the other party (the indemnitee) for any losses or damages that may arise from specific events or circumstances.. |
| Damages under a liability clause can only be claimed when there is a breach of contract, and they are limited by causation and remoteness.. | Indemnity can be claimed even before the actual loss has occurred, and it is typically found in commercial contracts and insurance policies.. |
| Liability clauses generally determine the liability in case of loss, resulting from the breach, caused by the contracting parties only.. | The indemnity promise may extend to third-party claims, and it can protect against liability by providing compensation for loss or damage.. |
| Liability clauses help to simplify the system by which liability is apportioned between the various parties.. | Indemnity clauses eliminate liability, and they are often used in business transactions to protect against potential losses or damages.. |
In summary, liability refers to the legal responsibility for harm or damage caused to another party, while indemnity is a contractual agreement that provides compensation for losses or damages arising from specific events or circumstances.
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