§ 22-02-07 — Rules applied in interpretation of a contract of indemnity

In the interpretation of a contract of indemnity, unless a contrary intention appears, the
following rules are to be applied:
1. Upon an indemnity against liability, expressly or in other equivalent terms, the person
indemnified is entitled to recover upon becoming liable.
2. Upon an indemnity against claims, demands, damages, or costs, expressly or in other
equivalent terms, the person indemnified is not entitled to recover without payment
thereof.
3. An indemnity against claims, demands, or liability, expressly or in other equivalent
terms, embraces the costs of defense against such claims, demands, or liability
incurred in good faith and in the exercise of reasonable discretion.
4. The person indemnifying is bound, on the request of the person indemnified, to defend
actions or proceedings brought against the latter in respect to the matters embraced
by the indemnity, but the person indemnified has the right to conduct such defense if
that person chooses to do so.
5. If, after request, the person indemnifying neglects to defend the person indemnified, a
recovery against the latter, suffered by the latter in good faith, is conclusive in the
latter's favor against the former.
6. If the person indemnifying, whether that person is a principal or a surety in the
agreement, has not had reasonable notice of action or proceedings against the person
indemnified or is not allowed to control its defense, judgment against the latter is only
presumptive evidence against the former.
7. A stipulation that a judgment against the person indemnified shall be conclusive upon
the person indemnifying is inapplicable if the person indemnifying had a good defense
upon the merits which, by want of ordinary care, the person indemnifying failed to
establish in the action.