insurance

Duty to Indemnify

An insurance company's obligation to pay damages, settlements, or judgments on behalf of their policyholder when a covered claim is established. Unlike the duty to defend, this obligation only arises after liability is determined and confirmed to fall within policy coverage.

Example

“After the court ruled that Karen was liable for the slip-and-fall accident at her store, her insurance company's duty to indemnify required them to pay the $150,000 judgment against her.”

Memory Tip

Indemnify = 'I'm Damage-Free' - the insurer pays so you remain financially unharmed by covered claims.

Why It Matters

The duty to indemnify is the fundamental promise of liability insurance - that your insurer will pay covered claims so you don't face personal financial ruin. This protection preserves your assets and future earnings when you're found legally responsible for damages to others.

Common Misconception

Policyholders often assume their insurer will pay any judgment against them, but the duty to indemnify only applies to covered claims within policy limits. Damages that exceed policy limits or fall outside coverage terms remain the policyholder's personal responsibility.

In Practice

Mike's general liability policy has $1 million limits when he's sued for $800,000 after a customer injury at his restaurant. His insurer provides defense under their duty to defend, spending $25,000 in legal costs. When the case settles for $600,000, the insurer's duty to indemnify requires them to pay the settlement amount. Mike pays nothing toward the $625,000 total cost since both defense and settlement fall within his coverage, but he would be personally liable if the settlement exceeded his $1 million policy limit.

Etymology

The term 'indemnify' comes from the Latin 'indemnis' meaning 'unhurt' or 'without loss.' In insurance, it represents the core promise to make the policyholder financially whole by paying covered claims.

Common Misspellings

Duty to IndemnfyDuty to IndemnifyDudy to IndemnifyDuty to Indemnifie

Related Terms

Duty to Defend Indemnification

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