Ex Gratia Payment is a payment made to help someone or as a gift, not because you have a legal duty to make it. In general term, it is a payment made to an individual by an organization, government, or insurer for damages or claims, but which does not involve the admittance of liability by the party making the payment. It is a payment made by an employer where there is no contractual obligation to do so. An ex gratia payment is considered voluntary, as the party making the payment is not obligated to compensate the individual. In Latin, “ex gratia” means “from favor.”
Organizations, governments, and insurers will typically provide compensation to victims only if they are legally required to do so. In the case of an insurance company, if a policyholder suffers an injury that is covered by the terms of the insurance policy, the insurer is obligated to pay. This type of payment is not voluntary, is the result of a legal obligation, and typically carries with it an admission of liability.
Ex gratia payments differ from legally mandated payments in that they are made voluntarily. In this regard, an ex gratia payment is made as a gesture of goodwill. The payment is made with respect to a specific loss or damage to property and does not carry with it an admission of liability. A company providing a one-time credit to its customers would not be considered to be making an ex gratia payment because the payment is not related to a specific loss, but a company that provides a credit after a service disruption would be considered to be making an ex gratia payment.