How is the measure of indemnity determined under an indemnity policy for machinery?

The measure of indemnity under an indemnity policy for machinery primarily focuses on restoring the insured to the financial position they were in before the loss occurred, without allowing for profit from the insurance claim. The correct choice relates to assessing the repair cost while taking into account the depreciation of the machinery, which is considered through an allowance for wear and tear.

When machinery is insured under an indemnity policy, if it becomes damaged, the insurer will typically reimburse the policyholder for the cost of repairs needed to return the machinery to its pre-loss condition. However, this reimbursement is often adjusted for any depreciation that has occurred due to the machinery’s age and usage. Therefore, the correct approach to calculating indemnity is to consider the repair cost and then reduce that amount by an allowance for wear and tear, reflecting the actual value of the machinery at the time of loss, not its original value.

This method supports the principle of indemnity, which is to ensure that the insured is compensated for their loss but does not profit from the claim. Other choices may either suggest measures that do not accurately reflect the necessary deductions for wear and tear or do not account for the principle of restoring the insured to their original position effectively.