Ex Gratia Payment

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Ex gratia payment this statement is used in the legal context very often. This payment is without commitment to liability or legal consequences. If something was done by grace or voluntarily, it means ex gratia. This is where the insurer pays the benefit, but there is no certainty as to liability for the damage.

When an Ex gratia payment is paid

Sometimes the insurer pays compensation even if it was not necessary. In this way he wants to improve his image and avoid publicizing the situation. Sometimes an ex gratia payment is paid when the insurance company knows that it is not responsible for the damage, but it is beneficial in terms of social or marketing considerations. Often the ex gratia payment is lower than the injured person wants. The amount is an advantageous solution for both parties. The injured person is compensated without trial in court, and the insurance company eliminates the risk of losing the case and does not suffer image losses.

Amount of payments

The recipient of the benefit ex gratia can only be someone who is included in the contract. Ex gratia benefit can be paid if the insurance contract is valid (even de facto already terminated) and the event that occurred is classified as an insurance accident. Payment ex gratia can not be arbitrary. There must be no discrimination against anyone. The benefit shall not be higher than that which the recipient would have been entitled to in a normal contract.

Example

An example is the history of the United States. After the aircraft accident, the question of ex gratia payment was raised. Legal issues are related to the responsibility of the state for what happened to foreigners. In such a situation, it must be shown that, when nations do something, they do it out of a sense of duty and not just for political reasons.

"If nations publicly acknowledge that they act or refrain from acting in accordance with a requirement of law, they incrementally strengthen an existing legal norm or contribute to the creation of a new one requiring or prohibiting such conduct. If they act merely ex gratia without acknowledging legal compulsion, then the act is not evidence of consent to a legal requirement to act in the way selected and does not, therefore, raise the inference of consent to be bound by an existing or newly emerging customary legal norm." (Harold G. Maier, Ex Gratia Payments and the Iranian Airline Tragedy, 1989).

"I am sure, that the executive branch, through the President, announced that the United States was contemplating payment to the survivors of those killed in the crash on humanitarian grounds only, not out of a sense of legal obligation."(Harold G. Maier, Ex Gratia Payments and the Iranian Airline Tragedy, 1989).

Interesting fact

This example shows gender discrimination in the case of ex-gratia payments in India.

"Payment made by governments to relatives of the deceased are often made to the head of the household which, more often than not, excludes women. In India, after the tsunami, ex gratia payment for the loss of the children was given only to men unless the husband died in tsunami. This resulted in spending of money on alcohol and other things not related to family needs. In Batticaloa, the regional capital of eastern coastal area of Sri Lanka, the authorities recognised only male-headed households so women whose husbands had died could not claim the money. In Thailand, the government paid twice as much to the families for the funeral expenses of men than for those of women based on the assumption that men are heads of households (APWLD 2006) (Table 25.9)."(Elaine Enarson, P G Dhar Chakrabarti, Women, Gender and Disaster: Global Issues and Initiatives, 2009).

"The aim of this article is to analyse salient gender-based issues in a specific post-disaster context and to add to the discourse on gender and disaster writ large."(Luke Juran, The Gendered Nature of Disasters, 2012).

Advantages of Ex Gratia Payment

Ex gratia payments are a way to settle disputes without involving legal proceedings. They can provide a number of advantages to both parties involved, including:

  • Avoiding lengthy and expensive legal proceedings - Ex gratia payments can offer an inexpensive and swift way to settle a dispute without having to resort to the courts. This can be especially beneficial for businesses, as it can prevent them from incurring high legal costs.
  • Increased privacy - Ex gratia payments are usually a private negotiation between two parties, and the details of the agreement are not made public. This can be beneficial to both parties as it can help to protect their reputations and maintain confidentiality.
  • Maintaining relationships - Ex gratia payments can help to preserve relationships between the two parties, as it allows them to come to an agreement without having to go to court. This can be especially important for businesses, as it can help to maintain goodwill between customers and suppliers.

Limitations of Ex Gratia Payment

Ex gratia payments are not legally binding and have several limitations. These include:

  • Lack of Legality: Ex gratia payments are not legally binding and are not a form of compensation. The payment is given as a gesture of goodwill and does not admit liability or fault.
  • No Guarantee of Future Payments: Ex gratia payments are given at the discretion of the payer, usually an employer or organization. This means that the payment is not guaranteed and there is no obligation to pay in the future.
  • Limited to Specific Circumstances: Ex gratia payments are only given in special cases, such as those that involve hardship or distress. The payment is not intended as a form of regular compensation.
  • Limited Amount: The amount of the payment is usually limited, as it is not considered a form of compensation. The amount of payment is usually based on the discretion of the payer and is usually lower than the amount of compensation that would be due in a legal case.

Other approaches related to Ex Gratia Payment

One approach to Ex Gratia Payment is to provide compensation for losses incurred due to a breach of contract. This type of payment is intended to provide a reasonable and fair settlement for both parties involved in the dispute. Other approaches to Ex Gratia Payment include:

  • Severance pay: This type of payment is often provided to employees who are laid off or terminated, and is intended to provide compensation for their loss of income due to the abrupt change in their employment status.
  • Pension buyouts: In some cases, a company may choose to offer a lump sum ex gratia payment to an employee instead of a pension plan. This can be beneficial to the employee, as they can receive the full amount of the payment up front, rather than having to wait until retirement.
  • Discretionary payments: This type of payment is generally made at the discretion of the company, and may be offered to employees as a reward for a job well done. This is often used as an incentive for employees to remain loyal to the company.

In summary, ex gratia payments are typically made to provide compensation for losses incurred due to a breach of contract, severance pay, pension buyouts, and discretionary payments. These payments are often intended to provide a reasonable and fair settlement for both parties involved in the dispute.


Ex Gratia Payment — recommended articles
Statute barred debt — Subrogation waiver — Indemnity bond — Exculpatory Clause — Indemnity principle — First party insurance — Hammer clause — Hardship clause — Runoff Insurance

References

Author: Aleksandra Jasińska

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