Principle of Indemnity

The Principle of Indemnity is a core principle in insurance law, primarily applied to cargo transport insurance in international trade. It means that when a loss covered by the insurance occurs to the insured subject matter, the insurer (insurance company) compensates the insured an amount that exactly restores the insured to the financial position before the loss, but not exceeding the actual loss or the insured amount. Usage scenarios include: marine, air, and land cargo insurance claims, and review of insurance documents under letters of credit. Notes: 1) The insured cannot profit from insurance, i.e., unjust enrichment is prohibited; 2) Compensation is capped at the insured amount and limited to the actual loss; 3) In case of double insurance, each insurer shares proportionally; 4) It is closely related to the principle of subrogation, where the insurer acquires the right to recover from liable parties after payment. Difference from other terms: The Principle of Indemnity emphasizes the 'filling' function of compensation, unlike the benefit principle in personal insurance (where multiple payments are allowed because life is priceless); it also differs from 'sacrifice compensation' in general average contribution, which is based on equity and shared by beneficiaries. Foreign trade practitioners need to accurately understand this principle to protect their rights in insurance, claims, and settlements.