The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor—
(1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;
(2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suit;
(3) all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit.
Legal Commentary & Landmark Judgments: Section 125
An indemnity-holder acting within the scope of their contractual authority is entitled to recover from the indemnifier all damages compelled in any suit, all litigation costs reasonably incurred in defending or initiating proceedings, and all sums paid under a bonafide compromise. This statutory protection insulates commercial parties from the financial hazards of defending third-party claims arising from underlying commercial engagements.
To secure recovery under Section 125, the indemnity-holder must immediately serve third-party notice of any incoming lawsuit or claim upon the indemnifier, offering the indemnifier the opportunity to conduct or assist in the defense.