how indemnity works
an indemnity clause is standard in the majority of insurance agreements however exactly what is covered and to what extent depends on the specific agreement any indemnity agreement has what is called a period of indemnity or a specific length of time for which the payment is valid similarly many contracts include a letter of indemnity which guarantees that both parties will meet the contract stipulations or else an indemnity must be paid indemnity is common in agreements between an individual and a business for example an agreement to obtain car insurance however it can also apply on a larger scale to relationships between businesses and government or between governments of two or more countries indemnity clauses can be complicated to negotiate and can lead to increased costs of services because of the increased risk of the contract sometimes governments a business or an entire industry must take on the costs of larger issues on behalf of the public such as outbreaks of disease for example according to reuters congress authorized 1 billion to fight a bird flu epidemic that devastated the u s poultry industry in 2014 and 2015 the u s department of agriculture spent 200 million of that money on indemnity payments paid to farmers who needed to kill their birds to stop the spread of the virus special considerationsindemnity may be paid in the form of cash or by way of repairs or replacement depending on the terms of the indemnity agreement for example in the case of home insurance the homeowner pays insurance premiums to the insurance company in exchange for the assurance that the homeowner will be indemnified if the house sustains damage from fire natural disasters or other perils specified in the insurance agreement in the event that the home is damaged significantly the insurance company will be obligated to restore the property to its original state either through repairs by authorized contractors or reimbursement to the homeowner for spending on such repairs indemnity insurance is a way for a company or individual to obtain protection from indemnity claims this insurance protects the holder from having to pay the full sum of an indemnity even if the holder is responsible for the cause of the indemnity many companies make indemnity insurance a requirement as lawsuits are common everyday examples include malpractice insurance which is common coverage for those in the medical field and errors and omissions insurance e o which protects companies and their employees against claims made by clients and applies to any given industry some companies also invest in deferred compensation indemnity insurance which protects the money that companies expect to receive in the future as with any other form of insurance indemnity insurance covers the costs of an indemnity claim including but not limited to court costs fees and settlements the amount covered by insurance depends on the specific agreement and the cost of the insurance depends on many factors including the policyholder s history of indemnity claims property leases also include indemnity clauses for example in the case of a rental property a tenant is typically responsible for damage due to negligence fines lawyer fees and more depending on the agreement an act of indemnity protects those who have acted illegally from being subject to penalties this exemption typically applies to public officers such as police officers or government officials who are sometimes compelled to commit illegal acts in order to carry out the responsibilities of their jobs often such protection is granted to a group of people who committed an illegal act for the common good such as the assassination of a known dictator or terrorist leader history of indemnityalthough indemnity agreements haven t always had a formal name they are not a new concept historically indemnity agreements have served to ensure cooperation between individuals businesses and governments in 1825 haiti was forced to pay france what was then called an independence debt the payments were intended to cover the losses that french plantation owners suffered after losing land and slaves while this form of indemnity was incredibly unjust it is one example of many historical cases that show the ways indemnity has been applied worldwide another common form of indemnity is the reparations a winning country seeks from a losing country after a war depending on the amount and extent of the indemnity due it can take years and even decades to pay off one of the most well known examples is the indemnity germany paid after its role in world war i those reparations were finally paid off in 2010 almost a century after they were assessed 