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📄 '''Indemnity provision''' is a contractual term that defines the scope, conditions, and limits of one party's obligation to make another whole following a covered loss—serving as the operative mechanism through which the [[Definition:Principle of indemnity | principle of indemnity]] is expressed in an [[Definition:Insurance policy | insurance policy]] or related agreement. In a typical [[Definition:Property insurance | property]] or [[Definition:Liability insurance | liability]] policy, the indemnity provision establishes that the [[Definition:Insurance carrier | insurer]] will pay the [[Definition:Insured | insured]] for actual financial loss sustained, up to the [[Definition:Policy limit | policy limit]], after application of any [[Definition:Deductible | deductible]] or [[Definition:Self-insured retention (SIR) | self-insured retention]]. It is the clause that translates the insurer's promise from abstract commitment into enforceable terms.

⚙️ The specific wording of an indemnity provision varies significantly depending on the line of business. A [[Definition:Commercial property insurance | commercial property]] indemnity provision may offer a choice between [[Definition:Actual cash value (ACV) | actual cash value]] and [[Definition:Replacement cost | replacement cost]], each implying a different measure of loss. A [[Definition:Professional liability insurance | professional liability]] provision typically covers damages the insured becomes legally obligated to pay, plus [[Definition:Defense costs | defense costs]], but may specify whether defense costs erode the policy limit. In [[Definition:Reinsurance | reinsurance]] contracts, the indemnity provision in a [[Definition:Treaty reinsurance | treaty]] defines whether recovery follows the [[Definition:Cedent | cedent's]] actual net paid loss or uses some other valuation basis. These nuances directly affect how claims are adjusted and how much money changes hands.

⚖️ Disputes over indemnity provisions rank among the most litigated areas in insurance law, precisely because the provision determines the dollar value of the insurer's obligation. Ambiguities—whether a loss is "direct physical loss" under a property form, or whether a cyber event triggers the indemnity provision in a [[Definition:Commercial general liability (CGL) | CGL]] policy—have produced landmark court decisions and regulatory guidance. For [[Definition:Underwriter | underwriters]] and product designers, drafting precise indemnity provisions that align coverage intent with policyholder expectations is both a legal necessity and a competitive differentiator. Meanwhile, [[Definition:Claims handler | claims professionals]] must interpret these provisions daily, making familiarity with their structure and common interpretive pitfalls an essential part of the job.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Principle of indemnity]]
* [[Definition:Actual cash value (ACV)]]
* [[Definition:Replacement cost]]
* [[Definition:Policy limit]]
* [[Definition:Valued policy]]
* [[Definition:Insuring agreement]]
{{Div col end}}

Definition:Indemnity provision - Revision history

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