What does the term 'indemnity' refer to in insurance claims?

The term 'indemnity' in insurance refers to the principle of restoring an insured party to the financial position they were in before a loss occurred. This means providing restitution for loss or damage suffered, ensuring that the insured does not benefit from the claim but is instead made whole again following the loss. The focus of indemnity is solely on covering the actual financial losses incurred, rather than addressing other forms of compensation such as punitive damages for negligence, emotional distress, or any refunds related to premium costs. Indemnity is a fundamental principle in insurance that emphasizes the value of fairness and equity in the claims process.