4/30/2020
What does indemnity insurance mean?
Indemnity insurance is a contractual arrangement in which one party guarantees compensation for actual or potential loss or damage suffered by the other party. It is generally an insurance policy designed to protect professionals and business owners when certain incidents are encountered, such as misjudgments. They usually take the form of a guarantee.
Typical examples of indemnity insurance include professional insurance policies, such as medical accident insurance and fault and omission insurance. These special insurance policies compensate or offset claims made by professionals when conducting business.
What is indemnity example?
Compensation is the act of protection or non-liability for damage, loss or damage, and the transfer of responsibility to another party (for example, an insurance company). The terms are commonly used interchangeably.
Generally, compensation is a contractual agreement that includes compensation for cash payments, replacements, repairs, or reinstallations.
In the legal sense, compensation is the same as compensation or reparation.
What is the purpose of an indemnity?
In the compensation clause, one party agrees to defend the other party and pay all costs of the lawsuit (if the lawsuit is prosecuted by a third party for a specific reason), and agrees to compensate the loss and judgment caused by the lawsuit. The compensation clause transfers the risks of "third parties" from one party to another. In fact, the indemnifying party acts as an insurer.
These examples give a conceptual idea ... so let me give you one:
Suppose you hire a contractor to carry out construction work in your house, and during this work, the contractor injured the UPS driver and damaged your vehicle. UPS drivers (third parties) may not only file lawsuits against contractors but also against your company that caused harm. In addition, assuming that the case is being heard, and it is determined that your company does not bear any responsibility, the contractor should also be 100% responsible. Your company will spend a lot of money defending itself in litigation.
Only if the contract between your company and the contractor contains a compensation clause, your company has the right to ask the contractor to compensate for all the money it has made for self-defense.
In other words, when a third party requests damage or damage, each party to the contract is independent, unless the contract contains an INDEMNIFICATION clause that transfers the "third party" requirement from one party to another.
What is the difference between insurance and indemnity?
Compensation and insurance can prevent financial losses and are designed to restore the party to the financial state prior to the incident. However, it is important that contract managers understand the major differences between the two to help protect their business.
Compensation
Compensation is used in commercial contracts to distribute risk among contracting parties, usually changing customary law or the legal rights of the parties, and one party accepts some or all of the risk of loss that the other party may suffer. Certain circumstances.
There are six common types of compensation clauses:
1. Overdraft: Organize compensation providers for all liabilities or losses related to specific events without specific restrictions
2. Limited compensation: In addition to the losses suffered by the supplier ’s actions, the organization will compensate for the supplier ’s losses.
3. Reverse compensation: Organize compensation for losses suffered by suppliers due to their own actions.
4. Partial/partial compensation: the organization and the supplier compensate each other for losses caused by the compensating party for breach of contract
5. Third-party compensation: The organization compensates the third-party claims of suppliers
6. Financial compensation: If the third party fails to fulfill the financial obligations with the supplier, the organization will compensate the supplier for the losses suffered
Insurance
People are usually more familiar with the concept of insurance. The insurance policy transfers risk from one party to the other in exchange for payment. Protect the insured from any loss caused by the insured's risk. Commercial insurance usually focuses on assets, income, liabilities and people, and many of its products are designed to meet the needs of specific industries.
If you accept the indemnity clause, it is best to study whether you can provide insurance for the risks that the clause may cover.
In any case, keep in mind that risk transfer will always carry a price tag.
At a glance
- Compensation and insurance prevent financial losses.
- Compensation is used to distribute risk among Contracting Parties and usually changes customary law or the legal rights of the parties.
- Insurance policy transfers risk from one party to another in exchange for payment.