Is indemnity insurance the same as liability? (2024)

Is indemnity insurance the same as liability?

Also referred to as professional liability insurance

Public Liability (PL) & Professional Indemnity (PI) are different types of insurance policies and cover different occurrences. Although they both cover allegations made against you and your business, the types of claims they cover vary.

Indemnity can be defined as a contractual obligation to compensate an individual or business for damages or losses they experience. Put another way, an insurance company indemnifies a policyholder by restoring them to their prior financial status, or making them “whole” again, in the event of a covered event or peril.

An agreement to indemnify arises from a promise by the indemnitor to safeguard or hold the imdemnitee harmless against existing or future loss, liability, or both. Unlike a release, which suppresses a cause of action, an indemnity creates a potential cause of action between the indemnitee and the indemnitor.

It seems most likely that the wording "liability under this Agreement" would in fact cover indemnity claims. However, it could be argued, for example, that the indemnity claim is a claim in debt, and that a debt is a promise to pay, not a liability.

When does Liability arise under an Indemnity? Breach of an indemnity gives rise to a right to unliquidated damages, ie not a debt (a contractual sum fixed in amount by the contract). It is not a fixed, quantified amount. The difference is significant.

For example, in the case of home insurance, the homeowner pays insurance premiums to the insurance company in exchange for the assurance that the homeowner will be indemnified if the house sustains damage from fire, natural disasters, or other perils specified in the insurance agreement.

Professional liability insurance (PLI), also called professional indemnity insurance (PII) but more commonly known as errors & omissions (E&O) in the US, is a form of liability insurance which helps protect professional advising, consulting, and service-providing individuals and companies from bearing the full cost of ...

Fines and penalties: Penalties and fines, imposed by regulatory bodies, for example, are not covered by professional indemnity insurance. Bodily injury and property damage: Professional indemnity insurance does not cover bodily injury and property damage, but general liability insurance would usually cover these.

They do not protect you against any sort of environmental and pollution claims. Some of the insurers also do not offer coverage for overseas work. Another shortcoming of professional indemnity insurance policies are that they are for a specified period only and not for life.

What does indemnity mean in simple terms?

What is Indemnity? The word indemnity means security or protection against a financial liability. It typically occurs in the form of a contractual agreement made between parties in which one party agrees to pay for losses or damages suffered by the other party.

Professional indemnity insurance, otherwise known as PI insurance, is designed to protect professionals who provide advice or services to their clients. This type of insurance is crucial for consultants, lawyers, accountants, architects, and other professionals who could face claims of negligence or malpractice.

Conceptual Differences:

Indemnity is concerned only with the causation, but not with remoteness. Damages under a liability clause are limited by causation, remoteness, and foreseeablity. Further, the damages should also be reasonable, even if there is a liquidated damages clause.

For example, it is easier to think of indemnities being useful for the customer or client in a contract: their prime purpose being protection. On the other hand, limited liability clauses are more useful for the supplier in a contract in order to limit their exposure.

Indemnification clauses can limit the liability of one party, reducing their financial exposure in the event of a loss or damage. Limiting their liability reduces their financial exposure and protects them against potential losses.

What is Limit of Indemnity? The Limit of Indemnity (LOI) is the maximum amount the insurer will pay under a policy during the policy period. Legal costs may be included within the Limit of Indemnity or may be covered as an additional amount, depending on the policy purchased.

Indemnity clauses are most commonly misused for two reasons: That if a risk is not covered by an indemnity, a party will not have adequate means of recovering its loss if the risk materialises. That an indemnity clause has advantages over a claim for damages such that if they can be used, they should be used.

There is no requirement to prove the indemnified party's financial loss. The indemnifier is required to pay the indemnified party. It removes the need for legal proceedings.

Professional indemnity insurance is a form of insurance that indemnifies the insured against the consequences of a breach of professional duty, particularly, negligence. Most commonly, doctors take out private professional indemnity cover though membership of an Medical Defence Organisation (MDO).

House indemnity policy is designed to protect homeowners from potential financial losses resulting from construction defects or incomplete building work. It provides coverage for structural defects that may arise within a specified period after the completion of construction or renovation work.

Who is liable when an insured suffers a loss?

The insurer (provider) compensates the insured (policyholder). The insurance company promises to compensate the policyholder for the amount of the loss up to the amount agreed upon in the contract.

Factors Influencing Your Limit of Indemnity

The type of trade you're involved in plays a significant role in determining your limit of indemnity. Trades with inherently higher risks, such as construction or electrical work, generally require higher coverage limits due to the potential for more substantial claims.

Even if your service was top-notch, but it somehow didn't meet your client's expectations, they can decide to sue. Professional indemnity insurance would cover the financial losses incurred during the course of a lawsuit against you or your company.

Sometimes called “errors and omissions (E&O) insurance,” professional liability insurance is essential for service providers in today's litigious environment.

The two types of professional liability insurance are claims-made and occurrence. Claims-made means the policy must have been active when the event and lawsuit happened, and occurrence means that the policy covers any qualified claim resulting from an incident while the policy was active.