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My dog died recently, and I was talking to a friend of the family. She told me she was sorry about the dog. My prepared response to "sorry" has always been "it's all right", since "sorry" almost always represents apologizing. So in response, I told her it's all right. It was only ten awkward seconds later that I realized that I'd told her I blamed her for the dead dog instead of thanking her for her sympathy.
Well, you are better than me, because I did not realize saying "it's all right" implied that until you explained it just now.
I also say that as a default response, it's like one of my programmed responses for certain dialogues.
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I've never understood that either.
When I was about 12 our house was robbed. Someone at school said to me "oh I'm sorry." So I said, "well you didn't do it right?"
I sometimes say "It's not your fault" if someone apologizes for something that happens. This usually takes them by surprise, though I never knew what the appropriate thing to say was. They always say "I don't mean that it's my fault, I'm just sorry it happened to you."
After my grandfather died, recently, I asked my mother why everyone said "sorry" to all the relatives. She explained it means "my condolences" or "my sympathies for your pain," and that made a lot more sense to me.