Letter of Indemnity

A letter of indemnity is a form of guarantee, typically issued by a bank or insurance company, whereby the recipient is covered against financial loss emanating from breach of contract in a business transaction. Letters of indemnity are a form of credit insurance that offer comfort to contracted parties that any loss from failure to perform contractually will be cured. A counterparty will often use a letter of indemnity to offer comfort to the other counterparty/ies that may otherwise opt not to enter into the contract. Letters of indemnity are also used in corporate mergers and acquisitions to cover costs – which can be considerable – incurred in the case of transactions failing to close.