Indemnity involves one party providing insurance or security against damages suffered by the other party.
What is indemnity?
Indemnity is a contractual agreement between two parties. One party, the indemnifier, agrees to compensate for damages or losses suffered by the other party, the indemnitee. The indemnity can either be financial or come in the form of repairs or replacement in case of objects like a car, device or a house, for example. The indemnitee usually pays a premium to the indemnifier in exchange.
Examples of indemnity
The most common examples of indemnity come from insurance contracts. In this case, the insurance (indemnifier) guarantees the client (indemnitee) protection (indemnity) against injury to their person, dependants or property. In a car insurance, the indemnity takes the form of paying for repairs or monetary compensation for the vehicle, should it be uneconomic to repair it.
While insurances may theoretically provide indemnity against injury caused by the indemnitee’s own behavior, it is important to note that this is not a given and usually comes with many additional conditions.
Another example of indemnity is when a law guarantees exemption for members of law enforcement or other public servants from liability when forced to break the law while carrying out their duty. This is not a blank check to violate any and every law, it has to be within predetermined boundaries or can otherwise be construed as abuse of power.
After a war, the victorious parties usually demands indemnities from the defeated ones in order to compensate for damages and losses suffered in the course of war. One of the most prominent examples for this are the indemnities Germany had to pay according to the Treaty of Versailles from 1919 and that were eventually paid off in 2010.
Some companies invest in a special indemnity insurance. This can have different forms, one being that a company is protected against having to pay the full indemnity sum for damages caused by itself or any of its employees. Another one can be a company insuring itself against the loss of expected future profits. Indemnity insurance usually covers the cost of court proceedings and more, depending on the specific agreement.