Opinion ID: 1838947
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Heading: indemnity and liability insurance distinguished

Text: In legal parlance liability insurance is used in both a broad and a narrow sense. When the term is used in a broad sense it includes both contracts of indemnity against loss and contracts of insurance against liability. See Vance, Insurance § 196 (3rd ed. 1951). But when the term is used in a narrow sense it refers only to contracts of insurance against liability as opposed to contracts of indemnity against loss. See Meloy v. Conoco, Inc., 504 So.2d 833 (La. 1987). Under a liability policy (in the narrow sense) the insurer is required to make payment although the insured has not yet suffered any loss, for by definition the purpose of the liability policy is to shield the insured from being required to make any payment on the claim for which he is liable. Couch on Insurance 2d (Rev. ed.) § 44:4. Under an indemnity contract, by way of contrast, the insurer is only required to indemnify or make whole the insured after he has sustained actual loss, meaning after the insured has paid or been compelled to make a payment, his action against the insurer then being to recover the amount of such loss by way of indemnity. Id.; See Meloy v. Conoco, Inc., 504 So.2d at 839. The general distinction between the two kinds of insurance is that if the policy is one against liability, the coverage thereunder attaches when the liability attaches, regardless of actual loss at that time; but if the policy is one of indemnity only, an action against the insurer does not lie until an actual loss in the discharge of the liability is sustained by the insured. 43 Am. Jur.2d Insurance § 712 (1964); see also Meloy v. Conoco, Inc., supra ; Waugh v. American Casualty Co., 190 Kan. 725, 378 P.2d 170 (1963); Gorman v. St. Paul Fire & Marine Ins. Co., 210 Md. 1, 121 A.2d 812 (1956); Kinnan v. Charles B. Hurst Co., 317 Ill. 251, 148 N.E. 12 (1925); McBride v. Aetna Life Ins. Co., 126 Ark. 528, 191 S.W. 5 (1917); Goodman v. Georgia Life Ins. Co., 189 Ala. 130, 66 So. 649 (1914); Frye v. Bath Gas & Electric Co., 97 Me. 241, 54 A. 395 (1903); Fenton v. Fidelity & Casualty Co., 36 Or. 283, 56 P. 1096 (1899); American Employers' Liability Ins. Co. v. Fordyce, 62 Ark. 562, 36 S.W. 1051 (1896); Anoka Lumber Co. v. Fidelity & Casualty Co., 63 Minn. 286, 65 N.W. 353 (1895); Couch, supra § 44:4; Appleman, Insurance Law and Practice (Buckley ed.) § 4261. In general, the class into which a particular policy falls depends upon the intention of the parties to the contract, as evinced by the phraseology of the agreement in such respect in the policy. 43 Am.Jur.2d § 712; see also Michel v. American Fire & Casualty Co., 82 F.2d 583 (5th Cir.1936); Slavens v. Standard Accident Ins. Co., 27 F.2d 859 (9th Cir.1928); DaCosta v. General Guaranty Insurance Co. of Florida, 226 So.2d 104 (Fla.1969); Appleman, supra § 4261; 1 R. Long, Law of Liability Insurance § 1.06. If the policy is ambiguous, the ambiguity should be resolved by interpretation that the policy is one against liability rather than one of indemnity against loss actually paid by the insured. 43 Am.Jur.2d § 712; see also Michel v. American Fire & Casualty Co., supra ; Lake v. Fidelity & Deposit Co. of Maryland, 430 F.2d 1251 (5th Cir.1970); DaCosta v. General Guaranty Insurance Co. of Florida, supra ; West v. MacMillan, 301 Pa. 344, 152 A. 104 (1926); Appleman, supra § 4261.