Principle of Indemnity – Applications
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The principle of indemnity can be modified in the case of relatively new machinery by the issue of
Reinstatement Value Policy. Under this policy, indemnity is provided by payment of cost of new
machinery but of the same type, without deduction for depreciation.
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Another modification is the valued policies on special types of property like works of art curios,
obsolete machinery etc., which do not have an easily determinable value. The sum insured under the
policy is agreed to be the value, subject to valuation certificate of experts. This value is paid in an
event of less.
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The principle is modified in the case of vintage cars (Those manufactured prior to 31-12-1940) where
agreed value policies are issued to avoid disputes regarding valuation after a loss.
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Marine hull Policies are also agreed value policies. Ships, irrespective of their age, have a special
value to the owners and a fair value to the insured is fixed by agreement between insurers and
insured.
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Liability policies e.g. motor third party, public liability, products liability, etc. indemnify the insured in
respect of damages awarded by law for personal injuries or damage to property of third parties. The
policies include a limit of indemnity and subject to this limit actual amount awarded are indemnified.
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In personal accident insurance the principle of indemnity is not strictly applied as human life cannot be
measured in terms of money.
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