Indemnity insurance protects against claims for loss and damage brought by someone else, compensating the injured party to their financial state before the accident. Compensation aims to restore financial integrity before the accident, and many agreements contain indemnification clauses to prevent lawsuits.
Indemnity is the legal philosophy on which the concept of most insurance policies rests. Strictly speaking, it is protection against claims for loss and damage brought by someone else. For example, the owner of an amusement park may carry indemnity insurance to compensate visitors injured on her property. The final insurance payout would be enough to return the injured person to the financial state they were in before the accident, but nothing more. Only a legal claim filed against the park owner could result in additional punitive damages. This type of insurance protects the holder from suffering financial loss due to a lawsuit.
The principle behind compensation is a financial restoration to a level just before the accident or injury or illegal act. Most laws relating to civil lawsuits also use this concept as a measure for damages. If a plaintiff is entitled to compensation for the defendant’s actions, the amount awarded should only return him to a state of integrity. Any actual loss suffered would be reimbursed, but punitive damages would be a separate matter.
Many people face compensation situations and don’t even realize it. Many rental agreements contain an indemnification clause that prevents the customer from suing the rental agency for damages caused by the use of the equipment. Apartment leases may also contain similar clauses, which limit claims against landlords in case of accidents. Whenever a ticket to a sporting event or concert is purchased, part of the condition of admission is an indemnity agreement between the ticket holder and the venue itself. If an errant baseball hits a fan or a faulty pyrotechnic display burns a concertgoer, the settlement protects the stadium or venue from a major lawsuit.
Even if the word “indemnification” is nowhere to be found in a document, there may be an agreement to “indemnify” another party. This means that you agree not to hold another person responsible for any accidents or injuries he may suffer while on his property. “Swim at your own risk” signs in an unattended pool are indicators of implied indemnity. If you choose to swim and you sustain a head injury from diving, you may not be able to sue the pool owner for medical expenses. If you understood the meaning of the sign at that time, you agreed to indemnify the owners. Sometimes a claim will be delayed in court proceedings, but not always.
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