Indemnity Definition

The "Legal-Ease" Glossary
Indemnity

Don’t be intimidated – this fancy-sounding legal word simply refers to the compensation you owe an injured or damaged party.

Say, for example, the following situation unfolds:

  • A customer enters your bakery, and your latest shipment of flour and sugar sacks are in the process of being moved to the backroom.
  • Your customer orders a croissant, backing away from the counter to see what your specials are. The customer’s heel catches on the bag of flour, and he falls backward, hitting his head on the hard floor.
  • Though you ask repeatedly if he wants medical attention, the customer leaves. Months later, you’re served an official complaint and demand for medical expenses over the incident.

Because it’s your responsibility to make sure your commercial premises are safe for the public, a court may hold you liable (i.e., legally responsible) for the customer’s injuries. When that happens, you’ll want your insurance company to cover those expenses. Or, to use a variant of our new word, you’ll want your insurance company to “indemnify” your business.

In the legal sense of the word, indemnity may refer to an exemption from liability for damages. And that’s the basis of every insurance policy: in exchange for a premium, the insurance provider agrees to indemnify your business for the covered loss or damage. When small businesses invest in business insurance, the insurance company can cover their responsibility to indemnify the injured party and pay damages.

A court may order your business to indemnify the injured customer. In this context, “indemnity” is more than just compensation – its goal is to make the injured party "whole" again. In turn, your General Liability Insurance policy with your provider likely indemnifies you from paying those damages on your own.

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