Letter of Indemnity – Definition

Cite this article as:"Letter of Indemnity – Definition," in The Business Professor, updated March 26, 2019, last accessed August 11, 2020, https://thebusinessprofessor.com/lesson/letter-of-indemnity-definition/.

Back To: COMMERCIAL LAW: CONTRACTS, PAYMENTS, SECURITY INTERESTS, & BANKRUPTCY

Letter of Indemnity Definition

Letter of indemnity is a transcribed task by the third party such as an insurance company or bank that states the transaction or contract to cover the second party on specific loss or destruction attributed to the failure of the first party on behalf of one of the parties. It can also be referred to as a bond of indemnity.

A Little More on What is a Letter of Indemnity

A Letter of indemnity shields the carrier against possible consequences that may arise from the release of goods without presentation of the original bill of loading. Letter of indemnity allows the buyer of goods to proceed to deliver the goods immediately without wasting time and paying unnecessary cost like storage expenses. Whenever it has been issued. Its application is common at the port where goods have made arrivals, but still, there is no official bill of loading. Letter of indemnity in some sense may mean exclusion from liability for damages something that may mean it is a form of legal compensation to losses. In indemnity, two parties sign a contract where one agrees to compensate the other in case of destruction of property or goods by the other. An insurer or the Indemnitor, coming to terms to compensate an insured or the indemnitee is one archetypal example of indemnity letter. Indemnity letter can offer to the carrier through for law and insurance for the stock market.  For law and insurance, indemnity letter act as a legal representation which one can use to claim compensation from a firm if losses arise from the activity that they did for the firm. For the stock market, indemnity letter is used to request documents that one lost.

References for Letter of Indemnity

Academic Research on Letter of Indemnity

The Legal Nature and Validity of Shipping Letter of Indemnity [J], Ziming, W. (1991). Annual of China Maritime Law, 1991-00. This paper point underpins the importance of presentation rule of the bill of lading for normal liabilities and delivery of carrier if he violates the rule. When he has delivered goods without the original bill of lading, the carrier can be discharged on various grounds from whole or part of his liabilities. Among other things is one exemption for the carriers. A letter of indemnity is prima facie, a contract that binds two parties. Action should be taken by the carrier against the shipper through the use of the bill of lading to recover any loses.

A Research On the Problems Caused by Shipping Letter of Indemnity and Possible Solutions [J], Kai, L. (1994).  Annual of China Maritime Law, 1994-00. The findings of this paper indicate that the letter of indemnity is common all over international shipping. Indemnity letters are either issued as discharge or at shipment. It can also be identified as a guarantee letter. In situations where passage as not concluded as stipulated in the bill of lading, letter of indemnity is employed. The paper also found some limitations on the use of a letter of indemnity. The paper found that there are complications that arise from damage caused to the goods or cargo during the carriage. Complications also arose from a situation where the carrier owns the ship and is also the charterer taken together and issuance of the indemnity letter also done by one of these persons.

The Marine Insurers── the Final Victims of Letter of Indemnity [J], Hao, Z. (1994). Annual of China Maritime Law, 1994-00. This paper found that a detailed letter of indemnity should contain the name and address of the parties involved, names of the third parties and their affiliates. According to the findings of this paper, the third party is the most vulnerable party in the contact between the two parties. Letter of indemnity to some extent in numerous instances has been alleged to be illegal and thus making it enforceable to anyone. This paper also identified cases of fraudulence in the letters of indemnity. It noted that there were double bills of lading that were issued for similar consignment. Goods of inferior quality were loaded in some cargos as some consignment sold to more than two parties. Consignment became non-existent when documents were forged.

The enforceability of the letter of indemnity in the context of shipping, Arizon, F. D. (2008). (Doctoral dissertation, University of Newcastle Upon Tyne). This paper examines that bankers, sellers and buyers have popularized indemnity letter. Collection of cargo is now done without a bill of lading. The practice of collecting cargo without a bill of lading violates the rule of presentation, but buyers still collect their good from ports without paying port charges and avoiding demurrage. Shipping operators often question the enforceability of letter of indemnity since using the letter of indemnity sometimes bring unanticipated results. Though the bill of lading remains the requisite for international trade, it poses great limitations for buyers and sellers making a letter of indemnity the easy option for them.

Letter of Indemnity in Carriage of Goods by Sea: Chinese Law and Judicial Practice, Zhao, L. (2017). The Chinese Maritime Code of 1992 does not provide a provision that regulates the application of the letter of indemnity. Its use is still popular in the carriage of sea cargo. The statue law that stipulates proper issues revolving around the application of the letter of indemnity was seen in contract law of 1999. Letter of indemnity is part of a contract of carriage of goods by the sea according to Chinese judiciary. This paper considers the basic issues that relate to the indemnity bond regarding the ferrying of goods by the sea.

Clean Bills of Lading and Letter of Indemnity (Letter of Guarantee) – [list of supplementary provisions of currently used transactions for inclusion and selective use], Climb Komine (1979). International Finance , 626), p 33 – 39. The finding in this paper identified various amendments letters of indemnity. International group A; this letter is given when the one does not produce the original bill of lading upon delivering cargo. This standard form of indemnity letter is given in return when cargo is delivered without the one stated in the bill of lading and without the issuance of an original bill of lading at the port. Int group; CC the indemnity letter incorporating the bank`s statement to join the letter and for the return of delivering cargo at a port other than the one highlighted in the bill of lading.

A Study on Letter of Guarantee and Letter of Indemnity in Trade Transaction, Michihiko Nishi. (2001). The first through large-Journal , 31 (3), 1-13. This paper highlights the key aspect of the law and practices of the European bank guarantees which have bold and financial letters of credit. The line of acquaintance is drawn the US and European bank guarantees, this being the most significant institution in the modern international trade. According to the findings of the paper, there remain a wide boundary separating bank guarantees, standby and commercial letters of credit. One is always put in a state of confusion arising from terminologies, bewildering array of groupings and conceptual uncertainties.

Clean Bills of Lading and Letter of Indemnity (Letter of Guarantee) -3, Komine climb (1979). International Finance , (627), p 23 – 27. This paper seeks to present guidance on the issues regarding bills of lading. It also focuses on issues that arise due to the latter of indemnity.  The author presents that the guidelines presented in the latter of indemnity must be followed to the latter.

Clean Bills of Lading and Letter of Indemnity (Letter of Guarantee) -1, Komine Noboru (1979). International Finance , (625), p 17-21. This paper seeks to present guidance on the issues regarding bills of lading. It also focuses on issues that arise due to the latter of indemnity.

Letters of Indemnity: Should they be Tolerated, Tetley, W. (1977). McGill LJ, 23, 668. This paper seeks to determine whether the conditions in the letter of indemnity should be tolerated or not. The author presents that despite being of the most common documents in the international trading, it is associated with issues that put restrictions to the business operations. In this regard, the author suggests that some of the restrictions should not be tolerated or should be eliminated from taking effects.

Letters of Indemnity in Arbitration Letters of Indemnity in Arbitration. Stansfield, R. H. (1986). Emory J. Int’l Disp. Resol., 1, 275. This paper examines the evolution of the international trade laws for many decades. According to the author, since the start of global trade, and during the classical era, the global trading has been controlled by the merchants who set the rules and measures that guide the business operations in the global market.

Was this article helpful?