What is an essential feature of an indemnity contract?

An essential feature of an indemnity contract is that it requires a loss to occur for payment. This characteristic is fundamental to the nature of indemnity agreements, which are designed to protect one party against the risk of loss or damage that they may face due to the actions or inactions of another party. In essence, an indemnity contract serves to restore the indemnified party to the position they were in prior to the loss, meaning a loss must transpire before any compensation is provided.

This aspect distinguishes indemnity contracts from other types of agreements, such as insurance policies that might offer certain conditions for coverage or protection. The necessity for an actual loss aligns with the core principle of indemnity, which is to compensate for the damages incurred as a direct result of specific events or circumstances. Thus, without the occurrence of a loss, no indemnity payment is triggered.