Indemnity

Indemnity means being made financially whole after a loss — restored to the position you were in before it happened, without profit. It is the foundational principle of insurance, which is why property claims pay actual cash value or replacement cost rather than an arbitrary amount, and why over-insuring never produces a windfall.

Indemnity also appears in contracts. An indemnification (or hold-harmless) clause shifts risk between businesses: the indemnitor promises to cover the indemnitee for certain losses. These clauses are common in trucking, construction, and professional-services agreements, and their wording (broad, intermediate, or limited form) decides how far the obligation reaches. Liability insurance is one mechanism for delivering that indemnity.

A key cash-flow nuance: indemnification-basis policies reimburse the insured after it pays the loss, while pay-on-behalf policies pay claimants directly. Contractual indemnity can also create uninsured exposure — a broad-form clause can obligate you beyond what your GL policy covers, which is why adding an additional insured matters.