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Indemnity and non-indemnity insurance

This book was written by Michael Dew, a Vancouver lawyer who practices civil litigation, including representing persons who have been denied coverage under property insurance policies, or liability insurance policies. If you have been denied insurance coverage and require assistance with making a claim against your insurer call Michael at 604 895 3160.
Most liability insurance policies are contracts of indemnity i.e. the insurer agrees to bear the financial consequences that would otherwise be borne by the insured – likely in the way of legal costs to defend a claim being made against the insured, and then payment of the settlement or court judgement if the insured is found to be liable to the plaintiff. However, not all insurance contracts are contracts of indemnity. For example, a life insurance contract is an insurance contract which does not indemnify for a specific pecuniary loss. The Supreme Court of Canada has commented on the difference between indemnity and non-indemnity policies as follows:
The distinction between indemnity and non-indemnity insurance is well-recognized in the insurance industry.  The following definitions, which I adopt here, were used by the 1988 Report of Inquiry into Motor Vehicle Accident Compensation in Ontario (the Osborne Commission), at p. 429:
An indemnity payment is one which is intended to compensate the insured in whole or in part for a pecuniary loss. . . .   A non-indemnity payment is a payment of a previously determined amount upon proof of a specified event, whether or not there has been pecuniary loss.
Perhaps the best example of non-indemnity insurance is that of life insurance.  The beneficiary under a life-insurance policy collects a set amount upon the death of the policy holder without reference to any pecuniary loss.  Pensions are also considered to be non-indemnity payments… Subject to these exceptions and the specific wording of the policy, there is a virtual presumption in the insurance industry that indemnity is the essence of all contracts of insurance...
(Cunningham v. Wheeler, [1994] 1 S.C.R. 359 per McLachlin J., citations omitted).
Most disability insurance payments will be payments of indemnity. However, in Maritime Life Assurance Co. v. Mullenix (1986), 23 C.C.L.I. 248 (S.S.S.C.T.D.) the court found that weekly payments were not payments of indemnity because such payments were not reduced on account of benefits obtained from other sources (e.g. unemployment insurance benefits) and did not provide for a set-off of other employment earnings obtained by the insured while he was unable to perform his usual occupation. Therefore the insurer was not entitled to recovery of money is ever paid out to the insured as weekly benefits.