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Indemnity insurance is insurance that pays to restore you to the financial position you were in before an insured loss, no better and no worse. In the UK the phrase also covers several distinct products, so knowing which one is meant decides what is actually covered.
Part of: Professional indemnity insurance
In short
Indemnity is the principle behind most UK non-life insurance: the insurer pays your actual loss, up to the limit and subject to the terms, so you are put back where you were rather than left better off. When people say “indemnity insurance” they usually mean professional indemnity insurance, which covers claims that your advice or service was negligent; a legal (title) indemnity policy bought during conveyancing for a specific defect; or trustee or directors’ cover protecting individuals from personal claims. A contractual indemnity is a promise in a contract, not insurance. Cost depends on the product, the risk and the limit.
The principle of indemnity is the idea behind most UK non-life insurance: after an insured loss, the insurer pays enough to put you back in the financial position you were in just before it, up to the policy limit. You should not end up better off than before the loss.
The Marine Insurance Act 1906, section 1 captures the idea in its definition of a marine policy: a contract under which the insurer undertakes to indemnify the assured against losses “in manner and to the extent thereby agreed”. Those last words matter. Indemnity is always measured by the policy terms, not by what you feel you have lost.
Several familiar rules follow from the principle:
Not every policy is a pure indemnity: life and personal accident cover usually pay a fixed sum, and many property policies agree to pay reinstatement costs. In liability insurance, indemnity means the insurer pays what you are legally liable to pay a third party, usually with defence costs. Our guide to indemnity vs liability explains the distinction.
“Indemnity insurance” usually means one of the products below. The last two rows are not insurance but are often confused with it.
| Type | Who it is for | What it usually covers | Points to note |
|---|---|---|---|
| Professional indemnity (PI) | Firms and individuals who give advice, design or professional services | Claims that you were negligent or breached a professional duty, plus defence costs | Usually written on a claims-made basis; a regulatory requirement in some professions |
| Legal (title) indemnity | Property buyers, sellers and lenders | Financial loss from a specific legal defect in a property’s title or paperwork | Covers the named risk only; does not fix physical defects |
| Trustee indemnity | Charity trustees | Personal liability for breach of trust or duty, or negligence, as a trustee | Statutory power to buy it from charity funds, with mandatory exclusions |
| Directors’ and officers’ (D&O) | Company directors and officers | Personal liability for wrongful acts in managing the company, and defence costs | The company can pay for it under the Companies Act 2006 |
| Contractual indemnity (not insurance) | Any party signing a contract | A promise to cover the other party’s losses or claims | May not be backed by your insurance |
| HM Land Registry indemnity (not insurance) | People who lose out through a mistake in the land register | Statutory compensation | Paid under the Land Registration Act 2002, not a policy |
GOV.UK’s How to sell a home guide defines indemnity insurance as insurance that can be used during conveyancing “to cover a legal defect with the property” that cannot be quickly resolved, or at all. Conveyancers commonly suggest a policy where, for example, old works lack building regulations sign-off, a restrictive covenant may have been breached, title deeds are missing, or a right of way is not properly documented.
These policies cover the financial consequences of the named risk, such as a third party enforcing a covenant. They do not make anything safe or compliant. West Lindsey District Council guidance notes that indemnity insurance can cover the cost of complying with an enforcement notice or court order, while liability for defective work stays with the building owner and passes to a buyer.
Policies commonly bar contacting the local authority or the person who benefits from a covenant, because that can prompt the very action insured. Read the conditions before anyone makes enquiries.
Do not confuse a title policy with HM Land Registry’s own indemnity. Practice guide 39 explains that Schedule 8 to the Land Registration Act 2002 provides statutory compensation for loss caused by a mistake in the register, without anyone needing to prove fault. It is lost for loss caused by the claimant’s own fraud or lack of proper care, and claims are subject to a six-year limit from when the claimant knew, or should have known, of the claim. A conveyancer’s own negligence is a different matter again, covered by their professional indemnity insurance.
Trustees and directors can be protected by an indemnity from the organisation or by insurance. The law limits the first.
Charity trustees. Under section 31 of the Trustee Act 2000, trustees can be reimbursed from trust funds for expenses properly incurred when acting for the trust. Personal liability for a breach of trust is different. Section 189 of the Charities Act 2011 lets trustees buy trustee indemnity insurance from charity funds if they are satisfied it is in the charity’s best interests. The policy must exclude criminal fines and regulatory penalties, criminal defence costs where the trustee is convicted of an offence involving fraud, dishonesty or wilful or reckless misconduct, and liability to the charity for conduct the trustee knew, or must be assumed to have known, was not in its interests. The Charity Commission’s CC49 guidance covers the detail, and our page on trustee PI vs trustee indemnity sets out the differences.
Company directors. Section 232 of the Companies Act 2006 makes void any provision by which a company indemnifies a director against liability for negligence, default, breach of duty or breach of trust in relation to the company, subject to exceptions. Section 233 allows the company to buy insurance for its directors. Section 234 allows a qualifying indemnity against liability to third parties, but not against fines, regulatory penalties, criminal defence costs where the director is convicted, or civil proceedings brought by the company that the director loses. Those gaps are why D&O cover usually includes a section that pays directors directly when the company cannot or will not.
A contractual indemnity is a promise in a contract to make good another party’s losses, often called a hold-harmless clause. It is not insurance. It can be wider than what you would owe at law, for example by covering losses whether or not you were at fault.
Liability and PI policies commonly exclude liability you take on under contract, except to the extent you would have been liable anyway. So a broad indemnity in a client contract can leave you with an uninsured gap. Our guides to hold harmless and indemnity agreements and the treatment of contractual liability in PI go further.
Illustrative scenario: a consultant signs a contract indemnifying the client against “all losses arising from the services”. A project overruns, partly for reasons outside the consultant’s control, and the client calls on the indemnity. The PI policy is likely to respond only to the part of the loss that flows from the consultant’s negligence, subject to the policy terms; the rest falls on the consultant’s business.
There is no single price for “indemnity insurance” because the products are so different. The main cost drivers are:
It means insurance that compensates you for an actual loss, putting you back in the financial position you were in before it happened, up to the policy limit and subject to the terms. In everyday UK use it most often refers to professional indemnity insurance or to a legal indemnity policy bought during a property sale or purchase.
Professional indemnity insurance is one type of indemnity insurance. It covers claims that you gave negligent advice or services, or breached a professional duty, plus defence costs. Other products use the same word, such as legal indemnity policies in conveyancing and trustee indemnity insurance, but they cover very different risks.
It is a policy, usually arranged by the conveyancer, that covers the financial consequences of a specific legal defect, such as missing building regulations sign-off or a possible breach of a restrictive covenant. It does not fix the defect or make work safe, and conditions often bar contacting the council or covenant holder.
It depends on the product. Professional indemnity cost is driven by your profession, fee income, limit, excess and claims history. A title policy depends on the defect and the sum insured. Trustee and D&O cover depend on the organisation’s size, finances, sector and limit. A broker can compare terms, not just price.
Only partly. Section 232 of the Companies Act 2006 voids most company indemnities for a director’s negligence or breach of duty. A company may indemnify against third-party claims under section 234, but not fines, regulatory penalties, or costs of criminal or company proceedings the director loses. Insurance under section 233 can fill some gaps.
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