What does indemnity mean in simple terms?

An indemnity is a promise by one party to compensate another for the loss suffered as a consequence of a specific event, called the ‘trigger event’. a party’s fault or negligence.

Is an indemnity legally binding?

It’s a legally binding promise to protect another person against loss from an event or series of events: they are indemnified and protected from liability. When an indemnity clause appears in a contract, it’s standalone contractual promise which gives rise to the claim.

What is the difference between indemnity and compensation?

Indemnity refers to a form of exemption from and/or security against certain losses, liabilities or penalties. Compensation is a form of relief given to an injured party while Indemnity is a form of immunity protecting a party from liability or legal action.

Do you have to prove loss for an indemnity?

An indemnity is a primary obligation; it does not depend on having to prove a breach of a contractual obligation. An indemnity will typically be triggered by losses being incurred, without the need to prove any “fault”.

Why have an indemnity in a contract?

In most contracts, an indemnification clause serves to compensate a party for harm or loss arising in connection with the other party’s actions or failure to act. The intent is to shift liability away from one party, and on to the indemnifying party.

Why is an indemnity better than breach of contract?

An indemnity is a primary obligation; it does not depend on having to prove a breach of a contractual obligation. This offers a number of advantages over bringing a damages claim for a breach of contract: An indemnity will typically be triggered by losses being incurred, without the need to prove any “fault”.

What is the difference between indemnity and liability?

When it comes to limitation of liability vs. indemnity, the major difference is that a limited liability clause is all about how much liability one party can be assigned if something goes wrong with a contract. In contrast, an indemnity clause is all about which party will have to bear the cost of defending a legal claim.

What exactly does indemnity mean?

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.

What does it mean to be indemnified?

Indemnify. To compensate for loss or damage; to provide security for financial reimbursement to an individual in case of a specified loss incurred by the person. Insurance companies indemnify their policyholders against damage caused by such things as fire, theft, and flooding, which are specified by the terms of the contract between…

What is the principle of indemnity?

Principle of Indemnity. All insurance is based on the principle of indemnity, which states that you are entitled to be made financially whole by an insurance settlement without realizing a profit. In other words, if you bought your car for $25,000, but it is only worth $11,000 at the time it is destroyed, your insurance policy pays you $11,000,…