Insurance Terms Defined – Indemnity (for business)
Like all industries, insurance has its own language and uses all kinds of terms and jargon that may not be common knowledge.
For this reason, we have available on our site a glossary of insurance terms as well as a collection of blog posts that go a little more in-depth into some of the more common or confusing terms you might come across in business, home and auto insurance.
In this post, let’s cover a term that is common in the realm of business insurance – indemnity.
In short, indemnity refers to a promise to provide compensation for certain costs and expenses. It transfers risk from one to another. One party agrees to covering the potential loss of another party.
Where does indemnity come into play for business?
Indemnities are often part of commercial contracts, which is why they are on the radar for many a business owner. Insurance steps in where it can cover the indemnity obligations that a given business may have. It helps to cover the risks that a business may take by agreeing to or signing to an indemnity. If an error or omission is made by the business in the course of providing services, an insurance policy can cover the fall out from that.
Is this the same as liability?
Professional liability insurance is another common term used to describe indemnity insurance. Errors and Omissions, or E&O is another term that you may have heard. These all refer to a business being covered in the event of a mistake or act of negligence when performing business duties.
What kinds of businesses need to think about indemnities and professional liability?
There are various sectors and types of commercial enterprise that should have indemnities and their resultant insurance coverage on their radar. In fact, in Ontario there are certain professions that must have coverage for E&O, such as accountants, real estate agents and lawyers. To get a full list of these professions that require liability coverage and to get more examples of businesses that while not obliged to be covered in this way, should seriously consider it, head to this post.
- How to advise clients on commercial contract indemnities (from the Canadian Underwriter)
From the Insurance Buddy blog:
- Business Insurance Q & A – Who Can Benefit from Professional Liability Coverage?
- Insurance Terms Defined – Errors and Omissions (E&O)
- Business Insurance Q & A – Which Professionals Should Consider Errors and Omissions Insurance?
- Business Insurance Q & A: Do I Need Commercial General Liability Coverage?
We have provided the definitions in this blog post for general information purposes only. They are not meant to be complete descriptions to cover any and all terms, conditions and exclusions that are found in different insurance policies. If there is any inconsistency between this information and the definitions in your policy, it is your policy that governs. Contact your insurance broker if you have any questions or need any clarification about your particular policy and the definitions therein.