Indemnity as an Insurance Principle

The principle of indemnity is why insurance is built to restore, not to enrich. It's the reason property claims get valued using methods like actual cash value or replacement value rather than paid out at whatever figure a policyholder names, and it's why a business can't collect more from a claim than the actual loss it suffered.

Indemnity in Contracts

Outside of insurance policy language, indemnity shows up constantly in commercial contracts: leases, vendor agreements, and construction contracts routinely include indemnification clauses where one party agrees to cover the other's losses or legal defense costs arising from specific situations. This is part of why hold harmless and additional insured language so often appears alongside indemnity clauses in the same contract.

Why This Distinction Matters

A business can sign a contract that obligates it to indemnify a landlord, general contractor, or client for a broad range of losses, obligations that may go beyond what its own insurance policy actually covers. Reviewing contract indemnity language against real policy limits and exclusions before signing is the only way to know whether there's a gap that would have to be paid for out of pocket.