Page 11 - Liability Insurance IC74

Guide for Liability Insurance

Q2. How does the principle of Indemnity operate in
Ans. (a) Public Liability Insurance - The principle of

Indemnity states that an insured can recover his
financial loss only to the extent of his insurable
interest. The objective is to ensure that the insured's
loss is made good in such a way that financially the
insured is neither better off nor worse off as a result
of the loss.

These insurances are designed to provide the
insured a protection against the financial
consequences of legal liability. If the insured is
legally liable to pay for damages, the policy
indemnifies him subject to the terms, conditions and
limitations of the contract. Indemnity is also available
in respect of legal costs and expenses incurred by
the insured with the written consent of the insurers
in the defense of settlement.

(b) Workman's Compensation Insurance - The
compensation to the third parties is paid on the
behalf of the insured and the insured has no direct
financial interest in claim settlement.

Thus the application of principle of indemnity is
simple and straight forward in the case of liability
insurance. The maximum limit of liability under the

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