What does Limit of Indemnity mean? | Professional Indemnity Insurance (2024)

FAQs

What does Limit of Indemnity mean? | Professional Indemnity Insurance? ›

This means that only a set amount is available under the policy which can be eroded by a single or number of claims or circ*mstances throughout the policy period.

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.

The limit of indemnity, often referred to as the policy limit, is the maximum amount your public liability insurance policy will pay out in the event of a covered claim.

In insurance terms, the "sums insured" and "limits of indemnity" refer to the maximum amount that the insurer will pay out in the event of a claim. Sums insured are typically used in policies such as property insurance or contents insurance, while limits of indemnity are more common in liability insurance policies.

A limited indemnity clause gives more downside risk protection to the indemnifying party. This term may also refer to a limited form or limited liability indemnity clause. In these cases, the indemnifying party is only liable for damages caused by their own negligence.

The indemnifying party's obligation to indemnify is limited to recoverable damages caused by, related to, or resulting from covered events.

Although there is no set formula in calculating a limit of Indemnity, there are a number of considerations when assessing what limit would be suitable when deciding what you want from your policy and how it protects you. Do you want the peace of mind knowing your operating margins are protected?

In respect of claims under an indemnity, if the indemnity is set out in an agreement executed as a simple contract, the limitation period will be that applicable for breach of contract (that is, six years).

Every effort should be made to tie your indemnity obligation to your negligent or intentional misconduct, but even if you must agree to indemnify the owner against risks arising from the lease or your occupancy, insertion of the words “to the extent” can narrow the scope of the indemnity agreement.

This means that XYZ's liability is unlimited. As the limit of indemnity on their policy is $2 million, this is the maximum amount their insurer will pay out. So, XYZ will be liable for the remaining $1 million. Limit of indemnity is the maximum amount your insurer will pay out for any single claim.

What is a monthly limit of indemnity? ›

MONTHLY LIMIT OF INDEMNITY OPTION: "When this option is chosen, the coinsurance clause is suspended. Instead the amount of payment for loss is calculated by multiplying the monthly limit factor by the limit of insurance selected, and this is the maximum amount available for payment in each 30-day period.

Underlying Limit(s) of Indemnity The total limit or limits of indemnity provided by the primary policy insurer and all insurers providing indemnity in excess of the primary policy insurers up to the underlying limit(s) of indemnity as stated in the schedule.

Maximum Indemnity Period

In practice, this means the insurance policy will cover the business interruption losses starting on the day the incident (i.e. damage) occurs and ending at expiry of the MIP.

That's why your insurance policy has a specified level of cover (sometimes called a 'limit of indemnity' or 'limit of liability'). That's the maximum amount your insurer pays out for any one or multiple claims. Sometimes you might need more cover than your policy allows, though.

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.

To indemnify, also known as indemnity or indemnification, means compensating a person for damages or losses they have incurred or will incur related to a specified accident, incident, or event.

MONTHLY LIMIT OF INDEMNITY OPTION: "When this option is chosen, the coinsurance clause is suspended. Instead the amount of payment for loss is calculated by multiplying the monthly limit factor by the limit of insurance selected, and this is the maximum amount available for payment in each 30-day period.