Indemnity is the legal philosophy upon which the concept of most insurance policies rests. Strictly speaking, indemnity is protection from loss and damage claims filed by another person. For example, the owner of an amusement park may have indemnity insurance to compensate visitors injured on his or her property. The eventual insurance payout would be enough to restore the injured person back to the financial state he or she was in before the accident, but nothing more. Only a legal lawsuit brought against the park owner could result in additional punitive damages. Indemnity insurance protects the holder from suffering financial loss due to a lawsuit.

The principle behind indemnity is a financial restoration to a level just before the accident or injury or illegal act. Most laws concerning civil court actions also use indemnity as a measuring stick for damages. If a plaintiff is entitled to compensation for the actions of the defendant, the amount awarded should only bring him or her back to a state of wholeness. Whatever actual losses were suffered would be repaid, but punitive damages would be a separate matter.

Many people encounter indemnity situations and don't even realize it. Many rental agreements contain an indemnity clause which prevents the customer from suing the rental agency for damages caused by use of the equipment. Leases for apartments may also contain indemnity clauses which limit claims against the owners in case of accidents. Whenever a ticket is purchased for a sporting event or concert, part of the condition of admission is an indemnity agreement between the ticketholder and the venue itself. If an errant baseball strikes a fan or a faulty pyrotechnic display burns a concert-goer, the indemnity agreement protects the stadium or hall from a major lawsuit.

Even if the word 'indemnity' is nowhere to be found on a document, there may be an agreement to 'indemnify' another party. This means that you agree not to hold someone else responsible for any accidents or injuries you may suffer while on his or her property. "Swim at your Own Risk" signs at an unguarded swimming pool are indicators of an implied indemnity. If you choose to swim and suffer a head injury from diving, you may not be able to sue the owner of the swimming pool for medical expenses. If you understood the sign's meaning at the time, you agreed to indemnify the owners. Sometimes an indemnity claim will hold up in court proceedings, but not always. Claiming indemnity from damages does not always mean protection from liability. A property owner may still be responsible for injuries on his property, even if the renter signed an indemnity clause as part of the lease.