Letter of indemnity
A letter of indemnity (LOI) is a document which the shipper indemnifies the shipping company against the implications of claims that may arise from the issue of a clean Bill of Lading when the goods were not loaded in accordance with the description in the Bill of Lading.
There are two different letters of indemnity: letters of indemnity for quantitative clauses and letters of indemnity for non-quantitative clauses. When the Bill of Lading forms the basis of a documentary credit, the bank demands a clean Bill of Lading. This is a Bill of Lading without reservations by the captain.
If for one reason or another, the goods were not loaded as prescribed, the captain may want to put reservations on the Bill of Lading. By doing so, the Bill of Lading is no longer clean and the bank will not give documentary credit. In order to remedy this, it is custom to put the reservations not on the Bill of Lading, but on the mates receipt and to draw up a letter of indemnity which the shipper indemnifies the captain (the shipping company) against the potential implications thereof.