View random article

What Is Indemnification?

Liability is often the major cause for most court cases nowadays. One person or entity can hold another person or entity accountable for whatever the former may have suffered. The purpose of filing a lawsuit on the basis of liability is to derive damages or some form of compensation so that the person who had been injured or harmed may receive just restitution. However, it is possible that a person or entity cannot sue for liability because a contract was signed by such a person or entity releasing a party form any form of liability. This situation is referred to as indemnification.

When a party signs a provision or statement that indemnifies another, this means that the former releases the latter from any type of liability. Thus, the latter is no longer accountable for any harm or damage suffered by the former. Indemnification is not necessarily a difficult provision to undertake, but the consequences of agreeing to indemnification may be severe in the event that a piece of equipment or object may actually cause serious harm or injury. For example, a person in a wheelchair falls because the wheelchair was faultily made. When this happens, the patient cannot hold the wheelchair company or hospital liable for any injuries sustained if he or she agreed to indemnification.

The purpose of indemnification is to ensure personal liability rather than have the actual party responsible for the incident or situation as liable. Personal liability may mean having to financially address injuries or harm by one’s self.

Featured in Finance