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Indemnity Insurance

Professional Indemnity Insurance Overview

Last Updated 15th Aug 2020

6th August 2020 – RBI keeps Repo Rate unchanged at 4%

The indemnity insurance or professional liability insurance protects the businessman or individuals from the loss and damage that they might have caused to their clients due to negligence of professionals.

Policyholders of Indemnity Insurance Doctors, Engineers, Lawyers, CA
Need of Professional Indemnity Insurance Protection against legal claims made by the third party against loss to life and property.
Exceptions A terrorist act, Intentional damage or illegal acts
Scope of Cover
  • Legal liability due to bodily injury or death
  • Legal costs and expenses

What is Professional Liability Insurance?

The Professional liability insurance or the indemnity insurance is the plan in which the insurance company reimburses the costs of legal expenses incurred in the defence of the claims made by the third party against the predetermined indemnity limit of the insurance policy taken by the professionals. The third parties make the legal claims on the professionals based on the poor services received from the professionals, which has caused monetary loss to the property or affected the life of the person.

Why do you need Professional Indemnity Insurance?

Regardless of the size of the business, any professional such as a doctor, engineer, lawyers and chartered accountants can make an error in handling the data of the clients or providing the right legal advice to the third party. However, sometimes these errors can cause a loss of life or property to the clients, thus they can make a legal claim on account of bad or poor services. These legal claims made by the third party can damage the goodwill of the professionals causing the monetary losses to the business in the long run.

Professional insurance thus provides defence against the legal claims by negotiating and in some cases providing damage costs to the third party. It covers the legal costs and fees incurred in defence of the claim and also awarding damage costs to the third party if the poor service has resulted in loss of life or property.

What is covered in Professional Indemnity Insurance?

Professional Indemnity Insurance provides the reimbursement against the claims of the third party only if the errors made by the professionals have resulted from the following scenarios:

  • Professional negligence: Any services which have resulted in loss of life or property must only result from the negligence. If the professional makes the mistake out of will then he will not get any insurance from the insurance company.
  • Unintentional breach of copyright or confidentiality: The professionals cannot breach the copyright or confidentiality offered by the clients. If any loss occurred due to breaching the confidentiality then the insurance company does not provide any compensation against the claims.
  • Loss of documents or data: If you have provided the wrong documents or confidential data to the wrong property which has caused the monetary loss to the clients, then indemnity insurance provides protection in this scenario. Further any negligence or error resulting in loss of goods are also covered under the professional indemnity insurance.

Who can avail the Professional Indemnity Insurance?

The general liability insurance cover is meant for professionals such as doctors, architects, advocates, lawyers, chartered accountants, counsels and management consultants. Further, the insurance company also offers group policies covering a single profession. The members may get a discount on the insurance depending on the number of members added in the insurance plan.

What is Professional Indemnity Insurance for Doctors?

The Indemnity Insurance for doctors protects medical practitioners against the legal claims made by the patients resulting in death or any bodily injury. The medical practitioners who are covered in professional indemnity insurance for doctors are surgeons, physicians, cardiologists and pathologists.

Indemnity insurance for doctors covers the following:

  • Errors and omissions which are unintentional.
  • Financial loss or damage to the patient, which is not willful neglect.
  • Cost of defending medical practitioners.
  • Defence cost for other consulting doctors or partners working with them.

Professional Indemnity Insurance Exclusions

The professional indemnity insurance does not provide indemnity cover in the following circumstances:

  • Illegal acts: Professional liability insurance does not cover any criminal or unlawful acts under Indian law.
  • Intentional Damage: If any loss caused to the third party is a result of planned actions by the insured, then the indemnity policy does not provide cover against the legal claims.
  • Specific Medical Treatments: The insurance companies do not cover any medical treatment for plastic surgery, genetic damages, and conditions associated with AIDS.
  • Employment Dispute: Professional Indemnity Insurance does not cover any financial loss which is a result of conflict between the employees.
  • Influence of Alcohol: If any service rendered by the professionals is done under the influence of drugs or alcohol, then it is not covered under professional indemnity insurance.
  • Acts of Terrorism: The professional indemnity insurance does not provide an insurance policy for any act of terrorism, including nuclear perils or war activity.

Claim Process for Indemnity Insurance

These are basic guidelines for claiming the compensation under the Indemnity Insurance:

  • The sum for the indemnity policy is based on the limit of the indemnity insurance. This limit is fixed per accident and is known as ‘Any One Accident’, ‘Ány One Year’. The ratio of ‘Any One Accident’ to ‘Ány One Year’ is chosen from the ratio 1:1, 1:2, 1:3 and 1:4 by the insured. This ratio is decided based on the nature of work and the number of people that could be affected by that work. The insurance company pays the insurance amount based on the AOA ratio chosen.
  • In India, Indemnity Insurance is provided for civil liability claims. If there is a possibility of turning such claims into liability claims, including any legal notice that is already sent should be informed to the insurance company. The insurance company arranges for the defence of the insured. It may also provide damage costs to the third party.
  • The insurance company pays the amount of the claim only if the claim has been made in the tenure of the indemnity policy. Also, the amount is paid when the negligence of the insured has caused the loss to the third party.


What is covered by professional indemnity insurance?

The indemnity insurance covers the legal costs and expenses incurred in defence of the claims made by the third party and also award damage costs to the third party.

Why is professional indemnity insurance required?

The professional indemnity insurance is necessary to cover the legal costs and expenses incurred in defences against the claims of the third party. The third party makes claims if they have received any poor services which result in loss of life or property.

How much does professional indemnity cost?

The cost of professional indemnity insurance depends on the nature of work and the number of persons involved in that work. The insurance company will however provide reimbursement on the indemnity limit of the policy.

Do I need professional indemnity insurance if I am a sole trader?

Yes, small and big businesses require indemnity insurance to safeguard the business as the third party can make claims on any professional if they are not satisfied by the services of the professionals.

How does an indemnity policy work?

The professional indemnity insurance is taken by the professionals such as doctors, engineers, CA etc. to protect themselves from the legal claims of their clients. The insurance company reimburses the expenses of the insured based on the indemnity limit. The indemnity limit is fixed per accident and per policy period which is called Any One Accident (AOA) limit and Any One Year (AOY) limit respectively.

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