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If you own or manage a business, you may have come across indemnity insurance. An indemnity insurance policy generally refers to any insurance policy that protects your business from liability it may owe a third party. These third parties may include customers, members of the public, and employees. This article will explain what indemnity insurance is in more detail. It will also provide an overview of the different indemnity insurances available for business.
How Does Indemnity Insurance Work?
An insurance policy indemnifies or ‘protects’ the insured if they suffer some sort of loss the insurance policy covers. Consider the following example.
In this instance, your business is responsible for the customer’s loss. As a result, the third party (or their insurer) has a right to claim against you to recover their damages. However, depending on your insurance coverage, your business may have an insurance policy that will indemnify you for any loss you suffer due to your liability.
In other words, you can claim the policy provided you have adequate coverage. If the insurer approves the claim, they will meet your costs on your behalf. Alternatively, the insurer will reimburse you if you have already paid the costs yourself.
What Are the Different Kinds of Indemnity Insurance Policies?
There are different kinds of indemnity or liability insurance which go by various names. Below are the four main kinds of indemnity insurance:
| Insurance Type | Explanation |
| Employer’s Liability | Any business that employs individuals must have employer’s liability insurance. This protects your business from any liability you may owe to your employees if they injure themselves at work. |
| Professional Indemnity | Professional indemnity insurance (P&I), or errors and omissions insurance, is relevant for solicitors, accountants, consultants, and financial advisers. P&I protects your business if it makes a mistake during any service. As many regulatory bodies regulate these professions, you may have to obtain P&I to operate in a regulated sector. |
| Public Liability | Public liability insurance protects your business from any injury a third party suffers in the course of your business. For instance, if a customer trips and falls at your shop. |
| Product Liability | Product liability insurance is relevant for manufacturers and some retailers. This policy will cover any loss if someone is injured or suffers a loss due to a faulty good you produced or sold. |
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Key Terms of an Indemnity Insurance Policy
As with all insurance policies, you must review the policy terms. Otherwise, the policy may not cover certain risks. Below are the critical terms of all indemnity insurance policies.
1. The Schedule
The schedule sets out the items particular to your insurance policy. For instance, the schedule will list the:
- coverage, which refers to the maximum amount the insurer will pay out under the policy;
- policy period, which is usually for a set period;
- name of the insured (i.e. your business) and the insurer; and
- territorial limits may be restricted to the UK or apply abroad.
2. The Insured
Insurance policies will only pay out if an insured loss happens to the insured party. Therefore, say you have an insurance policy in your name, but your business suffers some sort of loss. Even though you are insured, the insurer will not pay out your business. This is because your business is not insured.
3. The Insuring Clause
This is a term in the policy that specifies what precisely is insured. For instance, under a professional indemnity policy, the clause typically states that your business is insured against all civil liability arising from negligence. This would not protect your business from any property damage nor any consequences of criminal liability.
4. Limitations and Exclusions
Most insurance policies do not provide blanket coverage. For instance, a professional indemnity policy will not cover liability arising from intentional conduct. If an employee intentionally misleads a client, any subsequent loss the client claims against your business would not be covered under the policy.
This checklist will help you identify areas in your business that may need further protection or assistance to ensure you are legally compliant.
Key Takeaways
An indemnity insurance policy protects your business from any claims third parties may make against it. These third parties may include customers, members of the public, and even employees. There are different kinds of indemnity insurance depending on the coverage you need. The most common business policies are employee liability, professional indemnity insurance, and product liability.
If you need further guidance, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today at 0808 196 8584 or visit our membership page.
Frequently Asked Questions
An indemnity insurance policy protects your business from any claims third parties may make against it. These third parties may include customers, members of the public, and even employees.
You must get your employers’ liability insurance through an authorised insurer. Otherwise, you could be breaking the law.
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