*Basic

Indemnity is a comprehensive form of insurance compensation for damages or loss.[1] When the term indemnity is used in the legal sense, it may also refer to an exemption from liability for damages.[2]

**Intermediate

Indemnity is a contractual agreement between two parties. In this arrangement, one party agrees to pay for potential losses or damages caused by another party.[3] An example is an insurance contract, in which the insurer or the indemnitor agrees to compensate the other – indemnitee, for any damages or losses in return for premiums paid by the insured to the insurer.[4] With indemnity, the insurer indemnifies the policyholder – that is, promises to make whole the individual or business for any covered loss.[5] An indemnity clause is standard in most insurance agreements. However, exactly what is covered, to what extent, depends on the specific agreement. Any indemnity agreement has what is called a period of indemnity, or a specific timeframe for which the payment is valid.[6] Many contracts include a letter of indemnity, which guarantees that both parties will meet the contract stipulations – or else an indemnity must be paid.[7] Indemnity is common in agreements between individuals and businesses – for example, an agreement to obtain car insurance. However, it can also apply on a larger scale to relationships between businesses and government or between governments of two or more countries. Indemnity clauses can be complicated to negotiate and can lead to increased costs of services because of the increased risk of the contract.[8] Sometimes, governments, a business, or an entire industry must take on the costs of larger issues on behalf of the public, such as outbreaks of disease.[9] Indemnity may be paid in the form of cash, or by way of repairs or replacement, depending on the terms of the indemnity clause in the agreement.[10] For example, in the case of home insurance, the homeowner pays insurance premiums to the insurance company in exchange for the assurance that the homeowner will be indemnified if the house sustains damage from fire, natural disasters or other incidents specifed in the insurance agreement. In the event that the home is damaged significantly, the insurance company will be obligated to restore the property to its original state – either through repairs or reimbursement.

***Advanced

Many companies make indemnity insurance a requirement as lawsuits are common.[11] Examples include malpractice insurance, which is common in medical fields,[12] and errors and omissions insurance, which protects companies and their employees against claims made by clients and applies to any given industry.[13] Some companies also invest in deferred compensation indemnity insurance, which protects the money that companies expect to receive in the future.[14] Another common form of indemnity is the reparations a winning country seeks from a losing country after a war. This sort of arrangement can take decades to pay off. One of the best known examples is the indemnity Germany paid after its role in World War I. Those reparations were finally paid off in 2010, almost a century after they were put in place.[15]

Sources

[1] Editors. What is a specific indemnity on my insurance policy? Safaughnan.ie
[2] Editors. Indemnity. Wikipedia. en.wikipedia.org
[3] Editors Indemnity. uk.practicallaw.thomsonreuters.com
[4] Britton, P (2019). What is an Indemnity Clause? Brittontime.com
[5] Editors. Indemnity. Irmi.com
[6] Editors. Indemnity in Contracts. Rocketlawyer.com
[7] McRandal, M (2018). Indemnity – A Simple Concept? Allianz.ie
[8] Editors (2021). Don't get us started on indemnity clauses. Stephenson.law
[9] Editors. Indemnification Clauses in Commerical Contracts. Legal.thomsonreuters.com
[10] Editors. Indemnity Sample Clauses. Lawinsider.com
[11] Editors. Wjhat is an indemnity clause? Upcounsel.com
[12] Editors. Professional Indemnity Insurance. Mcmahonsolicitors.ie
[13] Editors. Professional Indemnity Insurance. Lawsociety.ie
[14] Editors. Deferral of Indemnity. Scic.ca
[15] Editors. World War I reparations. Wikipedia. en.wikipedia.org