Indemnity

Indemnity

Overview
An indemnity is a sum paid by A to B by way of compensation
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 for a particular loss suffered by B. The indemnitor (A) may or may not be responsible for the loss suffered by the indemnitee (B). Forms of indemnity include cash payments, repairs, replacement, and reinstatement.

Indemnity is often used as a synonym for compensation
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 or reparation
Reparation (legal)
In jurisprudence, reparation is replenishment of a previously inflicted loss by the criminal to the victim. Monetary restitution is a common form of reparation...

. While it is true, that all three can be construed as obligations to act on an injured party's behalf given the occurrence of a contractually-specified event.

However, indemnity as a legal concept has a much broader meaning than the other two terms; namely, an indemnity is to make a party to a contract "whole" again should that contractually-specified event occur.

While the event may be specified by the contract, the actions that must be taken to make the injured party "whole" again are largely fact-based and unknown to the parties until the event occurs, while the maximum liability is often expressly limited by the contract.

A car insurance policy is an example of indemnification.
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Unanswered Questions
Encyclopedia
An indemnity is a sum paid by A to B by way of compensation
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 for a particular loss suffered by B. The indemnitor (A) may or may not be responsible for the loss suffered by the indemnitee (B). Forms of indemnity include cash payments, repairs, replacement, and reinstatement.

General & legal meaning


Indemnity is often used as a synonym for compensation
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 or reparation
Reparation (legal)
In jurisprudence, reparation is replenishment of a previously inflicted loss by the criminal to the victim. Monetary restitution is a common form of reparation...

. While it is true, that all three can be construed as obligations to act on an injured party's behalf given the occurrence of a contractually-specified event.

However, indemnity as a legal concept has a much broader meaning than the other two terms; namely, an indemnity is to make a party to a contract "whole" again should that contractually-specified event occur.

While the event may be specified by the contract, the actions that must be taken to make the injured party "whole" again are largely fact-based and unknown to the parties until the event occurs, while the maximum liability is often expressly limited by the contract.

A car insurance policy is an example of indemnification. If a purchaser of car insurance policy is involved in an accident wherein the liability for the accident is undisputedly of their insured driver, then the insurance carrier has the duty to indemnify their insured driver in very specific ways to make them "whole" again.

The insurance carrier may pay them compensation (recompense for lost wages that would have normally occurred). Pay them for medical/legal/(pain and suffering) damages (i.e., those costs arising specifically as the result of the accident), reparations to tow and repair the vehicles involved in the accident returning them to their original condition, and the payment of rental vehicles while awaiting repairs.

It is in the breadth of the insurance carrier's obligations that we see the application of an indemnity; in other words, an indemnity is a "generalized promise of protection against a specific type of event by way of making the injured party whole again."

An indemnity should also be differentiated from a guarantee. A guarantee is the promise of a third party to honor the obligation of a party to a contract should that party be unable or unwilling to do so (usually a guarantee is limited to an obligation to pay a debt). 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."

Indemnity clauses



Under section 4 of the Statute of Frauds, 1677, a "guarantee" (an undertaking of secondary liability; to answer for another's default) must be evidenced in writing. No such formal requirement exists in respect of indemnities (involving the assumption of primary liability; to pay irrespective of another's default) which are enforceable even if made orally. (Ref: Peel E: "Treitel, The Law of Contract")
In the UK, under the Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom 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...

 s4, a consumer cannot be made to unreasonably indemnify another for their breach of contract
Breach of contract
Breach of contract is a legal cause of action 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....

 or negligence
Negligence
Negligence is a failure to exercise the care that a reasonably prudent person would exercise in like circumstances. The area of tort law known as negligence involves harm caused by carelessness, not intentional harm.According to Jay M...

.

Contract award


In England and Wales
England and Wales
England and Wales is a jurisdiction within the United Kingdom. It consists of England and Wales, two of the four countries of the United Kingdom...

 an "indemnity" monetary award may form part of rescission
Rescission
In 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 .-In court:Rescission is an...

 during an action of Restitutio in integrum
Restitutio in integrum
Restitutio 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 property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...

 and funds are exchanged, but indemnity may be granted for costs necessarily incurred to the innocent party pursuant to the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

. The leading case is Whittington v Seale, in which a contaminated farm
Farm
A farm is an area of land, or, for aquaculture, lake, river or sea, including various structures, devoted primarily to the practice of producing and managing food , fibres and, increasingly, fuel. It is the basic production facility in food production. Farms may be owned and operated by a single...

 was sold. Due to the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

, buyers renovated the Real estate
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...

 and, due to the contamination, incurred medical expenses for their manager who had fallen ill. Once the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 was rescinded, the buyer could be indemnified for the cost of renovation as this was necessary to the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

, but not the medical expenses as the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 did not require them to hire a manager. Were the sellers at fault
Fault (legal)
Fault, as a legal term, refers to legal blameworthiness and responsibility in each area of law. It refers to both the actus reus and the mental state of the defendant. The basic principle is that a defendant should be able to contemplate the harm that his actions may cause, and therefore should...

, damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 would clearly be available.

The distinction between indemnity and damages
Damages
In law, damages is an award, typically of money, to be paid to a person as compensation for loss or injury; grammatically, it is a singular noun, not plural.- Compensatory damages :...

 is subtle, but they may be differentiated by considering the roots of the law of obligations
Law of obligations
The law of obligations is one of the component private law elements of the civil system of law. It includes contract law, delict law, quasi-contract law, and quasi-delict law...

. How can money be paid where the defendant
Defendant
A 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 contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 before rescission
Rescission
In 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 .-In court:Rescission is an...

 is voidable but not void, meaning that, for a period of time, there is a legal contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

. During this time both parties have legal obligation. If the contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 is to be voided ab initio the obligations performed must also be compensated
Payment
A payment is the transfer of wealth from one party to another. A payment is usually made in exchange for the provision of goods, services or both, or to fulfill a legal obligation....

. Therefore the costs of indemnity arise from the (transient and performed) obligations of the claimant rather than a Breach of obligation
Breach of contract
Breach of contract is a legal cause of action 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....

 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.

Most business interruption insurance policies contain an Extended Period of Indemnity Endorsement, which extends coverage beyond the time that it takes to physically restore the property. This provision covers additional expenses that allow the business to return to prosperity and help the business restore revenues to pre-loss levels.

Freeing of slaves and indentured servants


Slave owners suffered a loss whenever their slaves or indentured servants were granted their freedom. Slave owners might have been paid to cover their losses.

When the slaves of Zanzibar
Zanzibar
Zanzibar ,Persian: زنگبار, from suffix bār: "coast" and Zangi: "bruin" ; is a semi-autonomous part 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 States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, U.S. President Abraham Lincoln
Abraham Lincoln
Abraham 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 a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...

 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 Amendment
Fourteenth Amendment to the United States Constitution
The Fourteenth Amendment to the United States Constitution was adopted on July 9, 1868, as one of the Reconstruction Amendments.Its Citizenship Clause provides a broad definition of citizenship that overruled the Dred Scott v...

 dismissed all of the claims that slave owners had been injured by the freeing of the slaves.

In 1807-08, in Prussia
Prussia
Prussia was a German kingdom and historic state originating out of the Duchy of Prussia and the Margraviate of Brandenburg. For centuries, the House of Hohenzollern ruled Prussia, successfully expanding its size by way of an unusually well-organized and effective army. Prussia shaped the 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.

Haiti
Haiti
Haiti , officially the Republic of Haiti , is a Caribbean country. It occupies the western, smaller portion of the island of Hispaniola, in the Greater Antillean archipelago, which it shares with the Dominican Republic. Ayiti was the indigenous Taíno or Amerindian name for the island...

 was required to pay an indemnity of 150,000,000 francs to France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 in order to atone for the loss suffered by the French
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 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
    First Sino-Japanese War
    The First Sino-Japanese War was fought between Qing Dynasty China and Meiji Japan, primarily over control of Korea...

    , the Treaty of Shimonoseki
    Treaty of Shimonoseki
    The 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. The peace conference took place from March 20 to April 17, 1895...

     required that China
    China
    Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...

     pay Japan
    Japan
    Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, 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 tael
    Tael
    Tael 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....

    s (or liang
    Liang
    Liang may refer to:*Liang , a Chinese surname common in Taiwan and southern China.*Liang , one of the states in China of the Spring and Autumn period ....

    s).
  • China incurred an indemnity which resulted from massacres of foreigners during the Boxer Rebellion
    Boxer Rebellion
    The Boxer Rebellion, also called the Boxer Uprising by some historians or the Righteous Harmony Society Movement in northern China, was a proto-nationalist movement by the "Righteous Harmony Society" , or "Righteous Fists of Harmony" or "Society of Righteous and Harmonious Fists" , in China between...

    . The payment of 450,000,000 Haikwan tael
    Tael
    Tael 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....

    s, or $330,000,000 became necessary.

See also

  • Double indemnity (insurance)
  • Professional Indemnity Insurance
  • Protection and indemnity insurance
  • War reparations
    War reparations
    War reparations are payments intended to cover damage or injury during a war. Generally, the term war reparations refers to money or goods changing hands, rather than such property transfers as the annexation of land.- History :...