What Is Indemnity Insurance?

Indemnity insurance is a contractual agreement in which one party guarantees compensation for actual or potential losses or damages sustained by another party. Most commonly, it is an insurance policy designed to protect professionals and business owners when found to be at fault for a specific event such as misjudgment.

Typical examples of indemnity insurance include professional insurance policies like malpractice insurance and errors and omissions insurance. These special insurance policies indemnify or reimburse professionals against claims made as they conduct their business.

How Indemnity Insurance Works

Indemnity is a comprehensive form of insurance compensation for damages or loss and, in the legal sense, it may also refer to an exemption from liability for damages.

Indemnity insurance, which is sometimes referred to as professional liability insurance, is a supplemental form of liability insurance specific to certain professionals or service providers. The professionals provide counsel, expertise, or specialized services. Indemnity insurance is unlike general liability or other forms of commercial liability insurance that protect businesses against claims of bodily harm or property damage.

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