Indemnity vs Damages
The terms Indemnity and Damages represent important principles in the field of Law, and they shouldn’t be confused as there is a clear difference between indemnity and damages in meaning. Indeed, those of us in the business community frequently come across these terms in contracts or agreements. However, for those of us somewhat unfamiliar with the application and function of each term, an explanation is essential. Before proceeding to understand the definitions of both terms, it is best to have a fair idea as to what these terms connote. Thus, think of Indemnity as a form of protection and Damages as a form of compensation or relief.
What does Indemnity mean?
The dictionary defines Indemnity to mean a form of security or protection against a loss or other financial burden. Other definitions interpret the term to mean a promise or undertaking to pay for a particular cost of damage or loss. Legally, however, it is considered an exemption from liabilities or penalties incurred by another party. In addition, Indemnity also serves as a security against injury or damage. Simply put, Indemnity is a form of security or exemption from liability for damages, loss or injury. For example, in a contract for service between Company X and Company Y (the party providing the service), Company X will ensure that it has Indemnity or that it is indemnified from all losses, liabilities, damages or penalties incurred by Company Y. The contract will contain what is popularly known as an ‘Indemnity Clause,’ which ensures the protection and exemption of Company X. An Indemnity clause prevents a third-party from filing action against and/or claiming compensation from the party indemnified. Think of it as a type of immunity claimed by a party from liability or penalty.
What does Damages mean?
The term ‘Damages’ is technically defined as a financial compensation, which is sought by a person for a particular loss or injury to his/her person, property or rights through the commission of some wrongful act by another. In general, Damages refers to a type of remedy available to a party filing a civil action against another person. Thus, if the plaintiff is successful in proving his/her case, then the court will award the monetary compensation claimed. From a legal perspective, Damages is typically awarded as a form of financial relief for a breach of duty or obligation. This award is binding on the defendant and he/she must pay the compensation claimed by the Plaintiff.
Damages are popularly awarded in cases involving torts or breach of contract. The general rule in law is that the court will award damages only for the loss or injury that resulted immediately and directly from the defendant’s negligence or wrongful act. Thus, Damages will not be awarded for secondary or remote consequences. Think of Damages as a remedy available to a plaintiff that determines the financial loss or extent of harm suffered by the plaintiff due to the defendant’s actions. The objective of Damages is to place the injured party in the position the party was in before the harm or loss occurred.
There are several types of Damages which differ from jurisdiction to jurisdiction. These include compensatory damages, punitive damages, liquidated damages and nominal damages. Losses falling within the purview of compensatory damages include economic loss, loss of earnings, property damages, and medical expenses. Punitive damages, in contrast, serves as a form of punishment on the defendant for his/her wrongdoing.
What is the difference between Indemnity and Damages?
• Indemnity refers to a form of security or protection against certain liabilities or penalties.
• Damages refers to a monetary compensation awarded by the court to a person who has suffered a loss or injury as a result of the defendant’s actions.
• Damages is typically of a financial nature. In contrast, Indemnity is a form of exemption or immunity from liabilities incurred by another. It is not limited to financial liabilities.