In an indemnity contract, the insurer is obligated to compensate for:

In an indemnity contract, the insurer is obligated to compensate for actual losses up to the limits specified in the policy. This principle means that the insurer pays for the value of the loss that the policyholder has incurred, rather than providing a fixed amount or some guaranteed sum. The intent of indemnity is to restore the insured to the financial position they occupied before the loss occurred, without allowing them to profit from the insurance.

For example, if a policyholder has a coverage limit of $100,000 and experiences a loss valued at $70,000, the insurer will compensate the policyholder for that actual loss, up to the coverage limit. The focus here is on the principle of actual loss rather than pre-defined or fixed payments, ensuring fairness in the insurance process and preventing moral hazard where individuals might seek to exploit insurance for more than they lost.