An
indemnity is a sum paid by
A to
B by way of
compensationIn law, damages are money claimed by, or ordered to be paid to, a person as compensation for loss or injury Black's Law Dictionary.- Compensatory damages :...
for a particular loss suffered by
B. The indemnifying party (
A) may or may not be responsible for the loss suffered by the indemnified party (
B). Forms of indemnity include cash payments, repairs, replacement, and reinstatement.
General & legal meaning
In common parlance, indemnity is often used as a synonym for
compensationIn law, damages are money claimed by, or ordered to be paid to, a person as compensation for loss or injury Black's Law Dictionary.- Compensatory damages :...
or
reparationReparation may refer to:*Reparation , the legal philosophy*Reparation , a theological concept*Reparation , a Reggae album by musician Eddy Grant** "Reparation", a song on that album...
.
As a legal concept, it has a more specific meaning, namely, to compensate another party to a contract for any loss that such other party may suffer during the performance of the contract. For instance, compensation connotes merely a sum paid to make good the loss of another without regard to the payer's identity, or their reasons for doing so. As the following paragraphs should explain, an indemnity is a sub-species of compensation, in the same way that
compensationIn law, damages are money claimed by, or ordered to be paid to, a person as compensation for loss or injury Black's Law Dictionary.- Compensatory damages :...
and reparation are.
The obligation to indemnify differs from the obligation to pay
compensationIn law, damages are money claimed by, or ordered to be paid to, a person as compensation for loss or injury Black's Law Dictionary.- Compensatory damages :...
, or make
reparationReparation may refer to:*Reparation , the legal philosophy*Reparation , a theological concept*Reparation , a Reggae album by musician Eddy Grant** "Reparation", a song on that album...
, in that an obligation to indemnify is a voluntary obligation. If
C crashes into
B's car and damages it and the crash is due to
C's negligence, most legal systems will impose
liabilityLegal liability is the legal bound obligation to pay debts.* In law a person is said to be legal liable when they are financially and legally responsible for something. Legal liability concerns both civil law and criminal law. See Strict liability. Under English law, with the passing of the Theft...
upon
C to pay
B for the damage caused.
C's obligation to
B arises by force of law irrespective of whether
C subjectively wishes to compensate
B or not. This is not, therefore, a situation of indemnity; the relationship between
B and
C is involuntary. In legal terms, it is a case of tortious (
common lawCommon law is law developed by judges through decisions of courts and similar tribunals , rather than through legislative statutes or executive action, and to corresponding legal systems that rely on precedential case law....
) or delictual (
civil lawCivil law is a legal system inspired by Roman law, the primary feature of which is that laws are written into a collection, codified, and not determined, as in common law, by judges. The principle of civil law is to provide all citizens with an accessible and written collection of the laws which...
) liability.
But, if
A had a contract with
B under which
A agreed to pay for any damage to
B's car, then
A paying
B would be obligatory (even if
A subjectively regretted the contract at this point). In legal terms,
A's liability is contractual and the sum paid is an indemnity. The contract just described between
A and
B is of course one of automobile comprehensive
insuranceInsurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known...
.
It was stated in the first paragraph that the indemnifying party (
A) may also be the party responsible for the loss. This is because although
A will probably have a legal duty to compensate
B (depending on the rules for damage wrongfully caused in the relevant legal system),
A may also have a contractual duty to compensate
C. Such
indemnity clauses can be found in many contracts aside from those specifically for insurance. For instance, (staying with the automobile theme), a car rental contract may stipulate that the renter will be responsible for damage to the rental car caused by their reckless driving. In other words the renter will indemnify the rental company.
An obligation to indemnity can also be distinguished from a guarantee granted by one party in regard to the potential
debtDebt is that which is owed; usually referencing assets owed, but the term can also cover moral obligations and other interactions not requiring money. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned...
s of another. For example
A might agree to stand guarantor (or
suretyA surety is a person who agrees to be responsible for the debt or obligation of another. Furthermore, a surety is also a "security against loss or damage or for the fulfillment of an obligation, the payment of a debt, etc.; a pledge, guaranty, or bond."The situation in which a surety is most...
) for her son
C (an impecunious law student) so that if
C cannot afford to pay his
rentRenting is an agreement where a payment is made for the temporary use of a good, service or property owned by another person or company. The owner of the good, service or property may be referred to as the lessor and the party paying to use the property as the lessee or renter...
to
B (his canny
landlordLandlord is the owner of a house, apartment, condominium, or real estate which is rented or leased to an individual or business, who is called a tenant . When a juristic person is in this position the term landlord is used. Other terms include lessor and owner...
),
A will be obliged to pay for him. Here,
C is the one primarily responsible for payment of the rent.
A's liability is only ancillary. The liability of an indemnifier, properly so-called, is primary. This distinction between indemnity and guarantee was discussed as early as the eighteenth century in
Birkmya v Darnell. In that case, concerned with a guarantee of payment for goods, rather than payment of rent, the presiding judge explained that a guarantee effectively says "Let him have the goods; if he does not pay you, I will." By contrast, an indemnity is like saying "Let him have the goods, I will be your paymaster."
Indemnity clauses
Under section 4 of the Statute of Frauds 1677, indemnity clauses must be constituted in writing.
In the UK, under the
Unfair Contract Terms Act 1977The Unfair Contract Terms Act 1977 is a British Act of Parliament which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of disclaimers of...
s4, a consumer cannot be made to unreasonably indemnify another for their
breach of contractBreach of contract is a legal concept in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance.- Minor breaches :...
or
negligenceNegligence is a legal concept in the common law legal systems usually used to achieve compensation for injuries . Negligence is a type of tort or delict . However, the concept is sometimes used in criminal law as well...
.
Contract award
In
England and WalesEngland and Wales is a legal unit within the United Kingdom. It consists of England and Wales, two of the four countries of the United Kingdom. Unlike Scotland and Northern Ireland, England and Wales follow the legal system known as English law, and the two form the constitutional successor to the...
an "indemnity" monetary award may form part of
rescissionIn contract law, rescission has been defined as the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract...
during an action of
Restitutio in integrumRestitutio in integrum is a Latin maxim which means restoration to original condition. It is one of the primary guiding principles behind the awarding of damages in common law negligence claims...
. The
propertyProperty is any physical or intangible entity that is owned by a person or jointly by a group of persons. Depending on the nature of the property, an owner of property has the right to consume, sell, rent, mortgage, transfer, exchange or destroy his or her property, and/or to exclude others from...
and funds are exchanged, but indemnity may be granted for costs necessarily incurred to the innocent party pursuant to the
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
. The leading case is
Whittington v Seale, in which a contaminated
farmA farm is an area of land, including various structures, devoted primarily to the practice of producing and managing food , fibers and, increasingly, fuel. It is the basic production facility in food production. Farms may be owned and operated by a single individual, family, community, corporation...
was sold. Due to the
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
, the buyers renovated the
Real estateProperty is any physical or intangible entity that is owned by a person or jointly by a group of persons. Depending on the nature of the property, an owner of property has the right to consume, sell, rent, mortgage, transfer, exchange or destroy his or her property, and/or to exclude others from...
and, due to the contamination, incurred medical expenses for their manager who had fallen ill. Once the
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
was rescinded, the buyer could be indemnified for the cost of renovation as this was necessary to the
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
, but not the medical expenses as the
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
did not require them to hire a manager. Were the sellers at
faultFault may refer to:*Fault , planar rock fractures which show evidence of relative movement*Fault , an abnormal condition or defect at the component, equipment, or sub-system level which may lead to a failure...
,
damagesIn law, damages are money claimed by, or ordered to be paid to, a person as compensation for loss or injury Black's Law Dictionary.- Compensatory damages :...
would clearly be available.
The distinction between indemnity and
damagesIn law, damages are money claimed by, or ordered to be paid to, a person as compensation for loss or injury Black's Law Dictionary.- Compensatory damages :...
is subtle, but they may be differentiated by considering the roots of the
law of obligationsThe Law of Obligations is one of the component private law elements of the civil law system of law. The Law of Obligations finds its origins in Roman law which is defined as a “legal tie” or “legal bond” in the Institutes of Justinian...
. How can money be paid where the
defendantA defendant or defender is any party who is required to answer the complaint of a plaintiff or pursuer in a civil lawsuit before a court, or any party who has been formally charged or accused of violating a criminal statute....
is not at fault? The
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
before
rescissionIn contract law, rescission has been defined as the unmaking of a contract between parties. Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract...
is voidable but not void, meaning that, for a period of time, there is a legal
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
. During this time both parties have legal obligation. If the
contractIn law, a contract is a binding legal agreement that is enforceable in a court of law. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy....
is to be voided
ab initio the obligations performed must also be compensated. Therefore the costs of indemnity arise from the (transient and performed) obligations of the claimant rather than a
Breach of obligationBreach of contract is a legal concept in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance.- Minor breaches :...
by the defendant.
Insurance
Indemnity insurance compensates the beneficiaries of the policies for their actual economic losses, up to the limiting amount of the insurance policy. It generally requires the insured to prove the amount of its loss before it can recover. Recovery is limited to the amount of the provable loss even if the face amount of the policy is higher. This is in contrast to, for example, life insurance, where the amount of the beneficiary's economic loss is irrelevant. The death of the person whose life is insured for reasons not excluded from the policy obligate the insurer to pay the entire policy amount to the beneficiary.
Freeing of slaves and indentured servants
Slave owners suffer a loss whenever their slaves or indentured servants are granted their freedom. Slave owners may be paid to cover their losses.
When the slaves of
ZanzibarZanzibar is a semi-autonomous part of the United Republic of Tanzania, in East Africa. It comprises the Zanzibar Archipelago in the Indian Ocean, off the coast of the mainland, and consists of numerous small islands and two large ones: Unguja , and Pemba...
were freed in 1897, it was by compensation since the prevailing opinion was that the slave owners suffered the loss of an asset whenever a slave was freed.
In the 1860s in the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
, U.S. President
Abraham LincolnAbraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through its greatest internal crisis, the American Civil War, preserving the Union and ending slavery...
had requested many millions of dollars from Congress with which to pay slave owners "for the loss of their property." On July 9, 1868, Section IV of the
Fourteenth Constitutional AmendmentThe Fourteenth Amendment to the United States Constitution, along with the Thirteenth and Fifteenth Amendments, was adopted after the Civil War as one of the Reconstruction Amendments. It was adopted on July 9, 1868....
dismissed all of the claims that slave owners had been injured by the freeing of the slaves.
In 1807-08, in
PrussiaPrussia was a historic state originating out of the Duchy of Prussia and the Margraviate of Brandenburg. For centuries this state had substantial influence on German and European history...
, statesman Baron Heinrich vom Stein introduced a series of reforms, the principal of which was the abolition of serfdom with indemnification to territorial lords.
HaitiHaiti , officially the Republic of Haiti , is a Creole- and French-speaking Caribbean country. Along with the Dominican Republic, it occupies the island of Hispaniola, in the Greater Antillean archipelago...
was required to pay an indemnity of 150,000,000 francs to
FranceFrance , officially the French Republic , is a country located in Western Europe, with several overseas islands and territories located on other continents. Metropolitan France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean...
in order to atone for the loss suffered by the
FrenchFrance , officially the French Republic , is a country located in Western Europe, with several overseas islands and territories located on other continents. Metropolitan France extends from the Mediterranean Sea to the English Channel and the North Sea, and from the Rhine to the Atlantic Ocean...
slave owners.
Costs of war
The nation that wins a war may insist on being paid compensations for the costs of the war, even after having been the creator of the war.
- Following the Sino-Japanese War of 1894-95
The First Sino-Japanese War was a war fought between Qing Dynasty China and Meiji Japan, primarily over the control of Korea...
, the Treaty of ShimonosekiThe Treaty of Shimonoseki , known as the Treaty of Maguan in China, was signed at the Shunpanrō hall on April 17, 1895 between the Empire of Japan and Qing Empire of China, ending the First Sino-Japanese War...
required that ChinaChina is a cultural region, an ancient civilization, and, depending on perspective, a national or multinational entity extending over a large area in East Asia....
pay Japanis an island country in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, People's Republic of China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
the sum of 200,000,000 taelTael can refer to any one of several weight measures of the Far East. Most commonly, it refers to the Chinese tael , a part of the Chinese system of weights and currency . There were many different weighting standards of tael depending on the region or type of trade. In general the silver tael...
s (or liangLiang may refer to:*Liang , a Chinese surname common in Taiwan and southern China.*Liang Dynasty , one of the Southern Dynasties in the Northern and Southern Dynasties period.** Daliang, ancient name of Kaifeng, in the province of Henan...
s).
- China incurred an indemnity which resulted from massacres of foreigners during the Boxer Rebellion
The Boxer Rebellion, more properly called the Boxer Uprising, or the Righteous Harmony Society Movement in Chinese, was a violent anti-imperialism, anti-Christian movement by the "Righteous Fists of Harmony,” Yihe tuan义和团 or Society of Righteous and Harmonious Fists in China , between 1898 and 1901...
. The payment of 450,000,000 Haikwan taelTael can refer to any one of several weight measures of the Far East. Most commonly, it refers to the Chinese tael , a part of the Chinese system of weights and currency . There were many different weighting standards of tael depending on the region or type of trade. In general the silver tael...
s, or $330,000,000 became necessary.
The indemnity lottery
The term was created by the Brazilian jurist Leonardo Castro. The article was published in BDJUR (the Brazilian Superior Court of Justice library). The term means that in civil cases of indemnity you can never predict the result (sentence).
See also
- Double indemnity
Double indemnity is a clause or provision in a life insurance or accident policy whereby the company agrees to pay the stated multiple of the face amount in the contract in cases of accidental death...
- Professional Indemnity Insurance
Professional indemnity insurance provides cover for claims brought against the policyholder due to their professional negligence.There are three types of Professional Indemnity wordings:- Negligent act, error or omission :...
- Protection and indemnity insurance