What does indemnification refer to?

Indemnification refers to a contractual agreement where one party agrees to compensate another party for losses or damages incurred. This concept is fundamental in risk management and insurance, as it provides a means for a policyholder to be made whole after a loss occurs. In various contracts, including insurance policies, indemnification assures that the financial burden of certain losses will not fall on the party that experiences the loss but instead will be taken on by another party, typically the insurer.

In insurance, indemnity is a guiding principle that ensures the insured does not profit from their insurance coverage but is restored to the financial position they were in prior to the loss. This approach upholds the principle of indemnity, which is to make the insured financially whole without allowing for any gain from the loss. The focus on contractual agreements underscores the importance of detailing the scope, conditions, and limits of indemnification in legal and insurance contexts.