Indemnity to Principal Clause


Rather than have joint or co-insured on policy schedules, some insurers rely on an Indemnity to Principal clause. Such clauses are included in most liability insurance policies and often stipulated as a requirement in contracts. Indemnity to Principles is usually found in insurance cover for contractors.


The Indemnity to Principal clause protects the principal (usually the end customer) or the principal contractor by outlining that if a claim is paid, the beneficiary of the policy will not necessarily be the policyholder, but instead the third party who has suffered the damage or injury. Basically, the clause says that while the policyholder is taking out the policy and paying the premium, it is not necessarily the policyholder who stands to receive the claims pay-out from the policy – the policyholder is purely buying protection.


To give an example: if, because of a company ABC’s negligence, their client XYZ (the 'principal) is sued by one of their own clients due to company ABC’s work, the Indemnity to Principal clause means the insurer will cover XYZ’s client's losses too (the 'indemnity').


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