Letter of Indemnity - Explained
What is a Letter of Indemnity?
Written by J. Mance Gordon
Updated at April 19th, 2024
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What is a Letter of Indemnity?
A letter of indemnity, or indemnity bond, functions similarly to insurance. One party secures a letter of indemnity from a bank to provide to another party with whom they will undertake a transaction. If the party securing the letter of indemnity fails to perform its obligations to the other party, the other party can seek payment from the financial institution.
How does a Letter of Indemnity Work?
A Letter of indemnity shields the one party to a transaction against possible consequences that may arise from the other party's failure to perform. They are common when a party has a duty to perform construction services or transport property.