Indemnity vs Compensation
The distinction between indemnity and compensation can be perplexing for individuals who are not well-versed in legal terminology. While both terms are commonly encountered in contracts and legal disputes, their meanings seem similar at first glance. To truly understand the difference between indemnity and compensation, it is necessary to examine each term in a legal context.
What is Indemnity?
Indemnity is typically defined as an exemption or exclusion from liability or penalty incurred by another person or company. It can also be considered a form of protection or security against loss or damage. For example, if a contract between two parties includes an indemnity clause, one party may be exempted from or protected against any liabilities, damages, losses, or penalties incurred by the other party. This indemnity clause prevents affected third parties from claiming relief from the indemnified party.
What is Compensation?
In a legal context, compensation is defined as a form of relief given to a person who suffered a loss or injury. It is the act of making good a loss or making amends for an injury suffered, usually through a monetary payment. Compensation is typically awarded by a court to parties who have suffered a loss, injury, or damage as a result of another person’s wrongful actions. Common examples of compensation include damages for loss of earnings, economic loss, property damages, and medical expenses.
Key Takeaways
- Indemnity refers to an exemption from and/or security against certain losses, liabilities, or penalties.
- Compensation is a form of payment given to a party for the loss, injury, or damage suffered as a result of another party’s actions.
- An aggrieved party cannot claim compensation from a party that has indemnity or is legally indemnified.
