Which situation best illustrates the concept of indemnification?

The situation that best illustrates the concept of indemnification is when a company pays another for environmental cleanup costs. Indemnification refers to a contractual agreement in which one party agrees to compensate another for losses or damages incurred. In this context, when one company takes responsibility for the costs associated with environmental cleanup, it is effectively indemnifying the other party for the financial impact of those damages. This action demonstrates the principle of indemnification by recognizing the obligation to restore the affected party to a financial position similar to what it would have been without the loss.

In other choices, while they may involve payments or coverages, they do not specifically align with the principle of indemnification as clearly as the chosen scenario. A contractor paying for his own injuries does not involve a transfer of liability or compensation to another party. An employee covering damages caused by their negligence may involve personal liability, but does not exemplify the more formalized contractual aspect of indemnification. A policyholder filing a claim for policy limits reflects the process of seeking reimbursement under an insurance policy rather than the principle of indemnification, which typically involves two parties agreeing to cover losses incurred.