As part of our ongoing insurance glosary we continue to explore the terminology and practices used in the Insurance world.
Today we will be looking at Indemnity Limits and will explore:
- What is an Indemnity Limit ?
- The different types of Indemnity Limits
- Examples of Indemnity Limits
- Why have an Aggregate Limit for the policy period ?
Indemnity Limits apply to Liability types of insurance such as Public Liability, Products Liability and Employers Liability but will also be found in Professional Indemnity insurance.
Put simply, an indemnity limit is the maximum amount that an insurer will pay out for any one claim and usually within any one policy year (assuming a yearly insurance policy).
Unlike a Sum Insured an Indemnity Limit however may be specified as an any one occurrence limit with no limit as to the total cover provided during the policy year.
Employers and Public Liability insurances usually limit their liability in respect of damages and claimant’s costs arising from any one occurrence, with no limit for the period of the policy.
This means that the Indemnity Limit applies separately to each claim that is made under the policy. However, all claims arising from the same occurrence would be regarded by Insurers as one claim.
Products Liability and Professional Indemnity are usually arranged with either and each and every claims basis or an annual aggregate limit with no per occurrence limit.
An Aggregate limit means that the Indemnity Limit would apply as one single amount for all claims made in each period of insurance.
An Employers or Public Liability policy would normally have its Indemnity Limit defined as:
£10,000,000 any one accident / unlimited during the period of insurance.
A Products Liability or Professional Indemnity policy may appear as:
£5,000,000 any one accident / unlimited during the period of insurance
£5,000,000 any one accident and in the aggregate during the period of the insurance.
An aggregate limit is applied so that Insurers can cap the maximum amount that they may have to pay in claims during a policy period.
This is very common on Products Liability insurance where Insurers could be opening themselves to unlimited liability for a faulty product. There is no way to quantify how much claims could escalate to so this helps them to restrict what their maximum loss may be.
Insurances which are required by law such as Employers Liability cannot be restricted as this could potentially mean that a valid claim which is covered by statute is not covered.