All About Indemnity Insurance In India
Indemnity means protection against any damage or loss. It is a promise made by a person to another to provide compensation for loss incurred to another person. This promise is made in the form of a contractual agreement between both the parties. Indemnity insurance is the best example of such a contractual agreement where insurance companies make a contract with their client to pay for the loss or damage incurred to a third party, due to the client’s conduct within the period of indemnity. Indemnity insurance availed by professionals to cover them against any financial liability against losses and damages incurred due to professional neglect is known as professional indemnity insurance.
Importance of Indemnity in Business
Indemnity protects against lawsuits or penalties in case of negligence or failure in performing professional duties. It takes care of the financial liability which can otherwise highly impact the business. In case a business is sued, indemnity insurance frees the directors and the executives of the business from personal liability and covers all the legal expenses. Sometimes businesses have a compulsory provision of indemnity of directors in their bylaws to attract top-notch professionals to serve as directors. It not only provides security in a business transaction but also creates transparency between parties involved. Parties involved in an indemnity agreement may include business and individuals, business and government or even governments of different countries.
Types of Indemnity Insurance
This type of indemnity insurance mostly covers doctors, health care professionals, hospitals, lawyers, accountants, wellness brands and professionals etc. Malpractice insurance is a professional indemnity which provides financial coverage against a client’s claim of negligence. It extends in case of a litigation filed against the professional by a client. The risks covered in malpractice insurance are cost of defence, financial losses due to indemnity claim, financial losses due to defamation and reputation damage and losses due to confidentiality breach. All these risks are covered within the term of the policy.
2. Errors and Omission [E&O] Insurance
This type is mostly needed by business professionals like IT consultants, attorneys, architects, technology companies etc. It covers professionals against claims made for inadequate work or mistakes. It covers all legal expenses and offers widespread coverage against claims for misuse of information, breach of confidentiality, restricted subjects, infringement of intellectual property rights like trademarks or trade secrets. It also includes additional cover for defamation and employee dishonesty. It is a must have indemnity for all IT/ITes suppliers which often face the risk of lawsuit due to system or technology failure, consultation deficiency, failed software implementation etc.
3. Directors and Officers [D&O] insurance
This type of indemnity insurance covers personal liability of directors and officers which may arise due to a wrongful act on part of the company. It covers claims made against directors, officers and employees for breach of duty, misstatement, error in managerial capacity, professional neglect, etc. along with the costs of defence in case of litigation. It is important to have this indemnity because directors and officers are more vulnerable to claims of stakeholders, sexual harrasement, employee practice violations, regulatory violations, accounting irregularities, corporate governance and various other legal requirements. This cover applies to all the members of the board of directors, management and employees in managerial roles.
How to claim for Indemnity Insurance?
Immediate intimation of claim requirement
In case of an event causing an indemnity claim, provide all the details of your claim request in writing to the insurance company immediately.
Submit all the required documents like claim form, report of the incidence, and other documents according to the nature of the claim such as legal notice or summons. The insurance company also arranges for the defense of the case. Here is a list of basic documents required to file a claim
- Claim form duly filled
- Legal notice if applicable
- Registration/license of the professional
- Certificates of the organization
- Client’s details pertaining to the loss
Once a claim is made, it is scrutinized and on approval a claim is settled with a specified period starting from submission of all documents and details.
Exclusions in Indemnity Insurance
Indemnity insurance does not provide cover in all kinds of situations. There are certain exclusions like,
- Contractual liability
- Intentional non-compliance
- Intellectual property infringement
- Criminal activities
- Fines and penalties
Any professional providing consultation of any type to a client or directly dealing with a client requires an indemnity insurance against the risk arising due to claims made by their clients. Many types of indemnity insurance are available to suit the requirements of different types of businesses and professionals.