The “what and why” of indemnities

Written By Kyle Sorensen

Indemnities | Blog 1

24 June 2023 | Adv. Louis Nel

Indemnities are a common feature of contracts and agreements within community schemes, but they can have significant implications for bodies corporate, trustees, managing agents and contractors. This article explains what an indemnity is, why it is used and why it is important to understand before entering into an agreement.

Indemnity clauses appear in many of the agreements entered into by community schemes, from contractor and maintenance agreements to managing-agent appointments. But what exactly does an indemnity mean, and what risks can it create for the parties involved?

An indemnity is on the one hand a safeguard to protect a supplier of goods and/or services from liability that may arise from the provision of such goods or services. It may however address the converse i.e. it can be an undertaking (such as insurance) by one party (the insurer/indemnitor) to reimburse the other (the insured/indemnitee) for liability by means of cash payment, replacement, reinstatement or repair (thebusinessprofessor.com).

Such liability can be one, or more, or a combination of the following:

  • losses,

  • claims,

  • damage,

  • loss, and/or

  • injury or death,

and the safeguard can be to exclude or minimise liability as stipulated therein. It goes by various names such as:

  • Hold/save harmless agreement

  • Waiver of liability

  • Release of/from liability or no-fault agreement

  • Release or waiver of liability

Clearly the use of the aforementioned wording in addition to the word ‘indemnity’ illustrates the nature of the document i.e. where the supplier is ‘protected against liability’ as opposed to insurance where the insurance company indemnifies the client i.e. ‘incurs liability’ and undertakes by and large to place the client/insured in a position he/she would have been had it not been for the insured incident.

Once this agreement has been entered into (and appropriately worded), it means the client waives the right to recover/claim from the supplier the stipulated matter(s) which can be as wide as physical loss, injury, harm or death up to & including material loss and damage which may include consequential, financial or economic loss of damage.

Contrary to a common misconception, such exculpation can arise even if the claim is due to the negligence of the supplier. However one aspect has been changed by the Consumer Protection Act (“CPA”): prior to the CPA a supplier could exclude liability for/limit liability to gross negligence, but that is no longer possible/illegal.

Finally the ‘Why’ - I believe it is clear from the above that it is a crucial component of any contract regardless of the risk aspects involved.

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Kyle Sorensen