NAGINDAS COLLEGE OF COMMERCE, ARTS AND MANAGEMENT STUDIESBHADRAN NAGAR, ROAD NO.1, OFF. S.V.ROAD, MALAD (WEST), MUMBAI – 400064. PROJECT REPORT ON LIABILITY INSURANCE “A Re-liable Solution” SUBMITTED BY ABHIZAR BOOTWALA T.Y.B.Com. (BANKING & INSURANCE) UNIVERSITY OF MUMBAI ACADEMIC YEAR: 2006 – 07
ACKNOWLEGEMENTSWhen I selected Liability Insurance as my project I knew it was a tough nut to crack but the support of the people around me made this project an interesting affair.I am inspired by my peers whose strong influence helped me all the way in completing this challenging project.I am thankful to Nisha Mehta whose valuable expertise and knowledge gave me the push that I needed to begin this project.I am also thankful to my special friend R. M. Patel who was my philosopher and guide during this project. I would be failing in my duty if I do not thank my colleagues who have helped me at various stages in the completion of this project. The last but not the least my thanks are due to the academicians at variousinstitutions and insurance companies who provided me various contents and valuable suggestions.
PREFACE Insurance is not a new area of academic study or profession. With the increasing dynamism of risk and growth of professional risk management, the insurance device has become more and more popular these days. The liberalization of the economy has resulted into the availability of largenumber of alternative products/financial services. This has paved way for the potential and unconventional entrants to penetrate the market through innovative higher product profile. So we come to the point-liability Insurance though the concept is old is has gained a lot of importance in the past few years. This project goes into the depths of Liability Insurance and covers all the major aspects of the subject along with company related examples to bring this project to life. It starts with the explanation of the topic along with types then covers the working of the insurance and it ends with a local survey which acts as the primary data of this project.
CONTENTS Introduction to Liability Insurance Overview of Liability Insurance Working of Liability Insurance Types of Liabilities Employee Liability Insurance Industrial Risks Liability Insurance Non Industrial Risks Liability Insurance Professional Liability Insurance Product Liability Insurance Directors and Officers Liability Insurance Liability Insurance in ICICI Lombard Primary Data Conclusion Bibliography Wibliography
INTRODUCTION TO LIABILITY INSURANCE Liability insurance is designed to protect your business from liabilities you may carry for injury to employees,customers, or other persons on your premises. You will need to carry liability insurance to protect yourself from risks. Liability insurance differs from other insurance in that it offers your protection from being liable—bound to pay—forinjuries that happen to other persons while on your premises. You may be liable for injuries or harm to customers andemployees, as well as other individuals who visit or utilize your business premises. In some cases, you may even be liable forinjuries that occur to people who trespass (illegally enter your business or property) and become injured. Because of the widevariety of liabilities that a start-up business person has, it is necessary to insure yourself properly. You know what insurance does, but what does liability insurance specifically do? Liability insurance can do anumber of things—it can cover injuries to your employees and customers protect you from law suits brought by trespassers,and cover legal charges in case you are sued for injury caused to someone while on your premises. Some liability insurancemay even protect you from claims of personal injury, such as libel and slander, if you are in an industry at-risk for these, andhave the proper addendums to yourbasic coverage. Before talking to an insurance agent or broker about liabilityinsurance, consult industry organizations and other small business owners tofind out what types of liability coverage’s they recommend. What are theliability risks for your industry? What is it most important for you to insureagainst, and what is the risk of a liability suit being brought against you.For Example: You own a catering company. While on a delivery, one of youremployees strikes another car and causes injury to the other driver and herproperty. You are liable to pay for injuries and property damages caused byyour employee, so having the right liability coverage can save you time, moneyand headaches. It is important to remember that you can be sued for injuries on your premises even if you took “reasonablecare” to prevent them.For Example:
Your employees do heavy lifting at your work place, and one of them is injured while putting a large box ona shelf. Even though you have provided your employees with ‘proper lifting training’ and weight belts and gloves, you maystill be liable for their injury. Because not even your appropriate safety measures can always protect you from liability suits,carrying liability insurance is absolutely necessary. Your insurance broker or agent should be able to help you determine whatsorts of liability risks your business runs. After determining what your risks are, your broker or agent will be able to help youchoose policies to protect yourself and your business from liability risks. Be sure to review your policies carefully, note whatis covered, what the terms of your coverage are, and how you report injuries or incidents if necessary.Liability insurance is a part of the general insurance system of risktransference. Originally, individuals or companies that faced a common perilformed a group and created a self-help fund out of which to paycompensation should any member incur loss. The modern system relies ondedicated carriers to offer protection against specified perils in considerationof a premium. Liability insurance is designed to offer specific protectionagainst third party claims, i.e., payment is not typically made to the insured,but rather to someone suffering loss who is not a party to the insurancecontract. In general, damage caused intentionally and contractual liabilitiesare not covered under liability insurance policies. When a claim is made, theinsurance carrier has the right to defend the insured. The legal costs of adefense are not affected by any policy limits, which is useful because theycan be significant where long trials are held to determine either fault or theamount of damages.
OVERVIEW OF LIABILITY INSURANCEIn many countries, liability insurance is a compulsory form of insurance forthose at risk of being sued by third parties for negligence. The most usualclasses of mandatory policy cover the drivers of vehicles, those who offerprofessional services to the public, those who manufacture products thatmay be harmful, and those who offer employment. The reason for such lawsis that the classes of insured are deliberately engaging in activities that putothers at risk of injury or loss. Public policy therefore requires that suchindividuals should carry insurance so that, if their activities do cause loss ordamage to another, money will be available to pay compensation. Inaddition, there are a further range of perils that prudent people insure againstand, consequently, the number and range of liability policies has increasedin line with the rise of contingency fee litigation offered by lawyers. Public Liability Insurance Act of 1991 defines the scope of liabilityinsurance in India. Mostly these relate to work situations and handling ofhazardous substances. However, in the light of today’s movement towardsgovernance and social responsibility of corporate, liability insurance issueshave begun to reach even the Board Room. This project examines the extentof insurance available to cover the risks of public liability.
WORKING OF LIABILITY INSURANCEThe cost of insurance - known as the premium - is typically worked outusing a book rating. A book rating is calculated using a base rate, whichincludes the insurers costs and reflects their appetite for your particular typeof business - if they want your type of business the rate will be less than ifthey dont.The premium is also calculated on the insurers estimate of the level of riskattached to a particular business or industry area.The premium will be affected by factors such as your claims history, the sizeof the perceived risk and your approach to risk management.Use our interactive Health & safety performance indicator tool to find outhow well youre managing your health and safety.The safer your working environment and the fewer claims you have made,the cheaper premium should be.Premiums are also calculated on the records of other similar businessesby lumping good and bad together - small businesses with a good recordmay be adversely affected by this. Your own safety record and approach torisk management can minimize the effect of this.
TYPES OF LIABILITIESInsurance is available across several types of liabilities, these are also knownas Indemnity Policies: 1. Employee Liabilities: Chief among these are those related to working conditions, and are covered under Workmen’s Compensation Insurance policies. Liability in this area chiefly covers the Industrial Risks. 2. Industrial risks: As per the Public Liability Policy covering the industrial risks, there exists a No-Fault Liability i.e. irrespective of any negligence, wrongdoing or default on part of any employer or owner in the event of death or injury to any person or damage to property out of an accident handling hazardous material. This is known as compulsory liability. The claimant is not required to prove that death, injury or damage occurred due to any neglect. 3. Non-industrial risks: These relate to non-industrial but mainly commercial enterprises such as Cinemas, Restaurants, Offices, Shopping Complexes, Schools, Exhibitions & Fairs, Shops etc. 4. Professional Liabilities: These relate to liability that could arise from the practice of a particular profession. Medical practitioners, engineers, architects, chartered accountants, directors of companies, lawyers & solicitors etc. are covered under this group.
5. Product liabilities: These are liabilities that could arise from the sale of products to customers and resulting damage to any customer due toa fault product. Edible products, equipment and machinery, clocks &watches, air-conditioners units, chemical products, motor vehicle tyres,fireworks and explosives, elevators & escalators etc. are covered undersuch policies.6. Public liability insurance (Act): This is a compulsory policy with limited scope, as the act only provides for basic relief. If the liability risks are high this policy can be supplemented with another public liability policy that is tailored to suit particular requirements.7. Directors and Officer’s liability: The D&O policy offers coverage for the liability faced by directors and officers of the company. It is notable that the D&O policy covers their personal liability and not that of the company.
EMPLOYERS LIABILITY INSURANCEIf you are employer, you are legally required to take out adequateemployer’s liability insurance...It ensures that, should an employee (currentor former) be injured at work or become ill as a result of their work anddecides to sue you for compensation; there is at least a minimum level ofinsurance to cover the claim. Failure to take out an insurance policy whichcomplies with the law can result in you being fined.CONDITIONSAs with any insurance policy there will be a number of conditions attached to which will betailored to your business. Certain conditions, however, cannot be imposed. Your insurer cannotrefuse to pay compensation: Purely because you have not provided reasonable protectionagainst injury or disease. You cannot provide certain information to the insurer You have donesomething they told you not to do You have not done something they told you to do You have notmet any legal requirement connected with protection of your employees However, if you haventcomplied with youre the health and safety measures the law requires - risk assessments,reporting accidents etc - then the insurer could end up sueing you to reclaim the cost of thecompensation.NOTIFICATION
Your insurer will give you a certificate of employers liability insurance. This must clearly state theminimum level of cover provided and the companies it covers. A copy of this certificate must bedisplayed where employees can easily read it.COVERYou must be insured for at least 5Cr but once youve assessed your risks and liabilities you maydecide you need more than this. Most insurers offer cover of at least 10Cr.You can split the coverbetween different insurance companies - as long as the total is at least 5Cr. Bear in mind that theminmim level of cover includes costs so you may want to buy additional insurance to cover this.EXCEMPTIONSMost public organizations such as Government departments and local authorities, health servicebodies and publicly financed organizations such as passenger transport executives are exempt.The main exemption most likely to apply to small businesses, however, is the one relating tofamily businesses. If your employees are close relations (spouse, parent, grandparent,stepparent, child, grandchild, stepchild, sibling or half sibling) you do not have to take out theinsurance unless your family business has been incorporated as a limited company.FOR WHOMYou need to take out insurance for all your employees. This is usually straightforward but if youhave self-employed people working for you on a regular basis they may be covered to. Their taxstatus or job title is irrelevant. What matters if the real nature of the relationship you have withthem and the degree of control you have over the work they do. There are no definite rules, butthe following table should help you work out whether or not someone is an employee for thepurpose of employers liability insurance: You will need employers liability insurance if some or all
of the following statements apply You will not need employers liability insurance if some or all ofthe following statements apply You deduct National Insurance and tax from the money you paythem You do not deduct tax or National Insurance (though this alone is not conclusive proof) Youhave the right to control where, when and how they work They do not work exclusively for yousupply most materials and equipment They supply most of the equipment and materials theyneed to do for the job You have right to the profits and suffer the losses your worker makes Theyare clearly in business for personal benefit You hire that person to do the job and the cannot senda substitute in their place They can employ a substitute when they are unable to do the workthemselves They are treated as other employees, e.g. they enjoy the same terms and conditionsYou normally dont need to insure volunteers but you will need cover for students working unpaid,participants taking part in a youth or adult training programme or a school student on a workexperience programme. If this applies to you, inform your insurance company and consider takingout insurance as they may be classed as employees. You only need to insure domestic help suchas gardeners and cleaners if they work exclusively for you. If they have more than one client youare probably exempt.PERIODYou must copy certificates of insurance for 40 years after their expiry date. This is becauseclaims can be made for diseases many years after the disease is caused. You must theseavailable to health and safety inspectors on request. This requirement only applies to policies inforce on 31 December 1998 or later. But you should retain any records relating to previousinsurance polices just in case.
INDUSTRIAL RISKS LIABILITY INSURANCEPublic Liability (industries)Plan Details:This Policy broadly covers:Legal liability of the Insured towards damages to third party with respect toaccidental death, bodily injury or disease and loss or damage to property.
Legal costs and expenses incurred with the prior consent of the Insurer andwithin the limit of indemnity.Main ExtensionsThese include:industrial Seepage, pollution and contamination extension, carriage ofeffluents (outside the premises) extension, transportation extension,technical collaborators extension, act of god, perils extension.Sum InsuredDepending on exposure, the Proposer has to fix two limits of indemnity asunder (for both premises and transportation): Any One Accident (AOA) andAny One Year (AOY). AOA and AOY can be in ratio of 1:1, 1:2, 1:3 or 1:4.It is not permissible to issue the policy with unlimited liability.PremiumPremium chargeable depends on the: Risk group Limits of indemnity selected Ratio of limits Number of locations Annual turnover.ExcessPolicy is subject to a compulsory excess of 0.5% of AOA limit, subject to amaximum of Rs 3,00,000/- and minimum of Rs 2000/-. Higher excess optedon a voluntary basis qualifies for a discount in the premium level.Exclusions
This Policy does not cover liability arising out of or in connection with:pollution any product personal injuries such as, libel, slander, fines, penaltiespunitive or exemplary damages, transportation of materials.What can be insuredAll industrial risks (other than risks rateable under Petrochemical Tariff)having overall Sum Insured of Rs. 100 Crores and above in one or morelocations in India are eligible. This is a package policy with the followingcovers:Fire and Special Perils including Flood, Storm, Tempest, Earthquake, Fire &Shock, Consequential Loss (Fire), Machinery Breakdown, Boiler Explosion,Electronic Equipment, Machinery Breakdown – Optional.Basis of InsuranceBuildings, Machinery, Furniture, Fixtures and Fittings & ElectricalInstallations shall be on reinstatement value basis only. Stocks shall becovered on market value basis. Facilities of declarations for stocks are notavailable under this policy. Underinsurance on each to the extent of 15%will be ignored. Compulsory Deductibles Material Damage. 5% of theclaim amount subject to minimum of Rs. 5 Lakhs and maximum of Rs. 50Lakhs Business Interruption Fire Three days Gross Profit subject tominimum of Rs. 5 Lakhs and maximum of Rs. 50 Lakhs MachineryBreakdownDepends on the type of industry and claims experience.Voluntary Deductibles
As prescribed under IAR Tariff Extensions Following clauses may beattached to the policy by adjusting or providing additional Sum Insuredwhere applicable Agreed Bank Clause Architects, Surveyors and ConsultingEngineers Fees Clause, Designation of Property Clause, Escalation ClauseOmission to Insure Additions, Alterations or Extensions Clause, TemporaryRemoval of Stocks Clause.ExclusionsDestruction/damage by own fermentation natural heating or spontaneouscombustion, undergoing any heating or drying process, burning of propertyinsured by order of any public authority, explosion/implosion damage toboilers, damage caused by centrifugal forces, forest fire, war and nucleargroup of perils, unspecified precious stones (upto Rs. 10,000), cheques,currency etc. electrical files, consequential losses, theft during/afteroperation of peril, mis-description, mis-representation, non-disclosure ofmaterial facts, expenses relating to claim documentation, fraud. NON-INDUSTRIAL RISKS LIABILITY INSURANCE There are nine different categories under which the non-industrial risks are classified for the purpose of liability insurance:
1. Hotels, motels, restaurants, club-houses, boarding & lodging houses, flight kitchens & other establishments in the hospitality businesses. 2. Cinema halls, auditoriums, theatres, public halls, pandals, open air theatres & other concert venues. 3. Residential premises owned & used for private purposes. 4. Offices, administrative premises, medical premises, airports, research institutes & laboratories. 5. Schools, educational institutions, public libraries. 6. Exhibitions, fairs, fetes, melas, stadium & public grounds. 7. Permanent amusement parks. 8. Depots, warehouses, godowns, shops, tank farms & other similar non-industrial risks. 9. Film studios-indoor & outdoor, circus, zoological parks.Limits of Indemnity 1. Minimum as described in the compulsory liability policy. 2. The insured has to select limits of indemnity based on Any One Accident (AOA) & Any One Year (AOY) basis, in a ratio of 1:1, 1:2, 1:3 or 1:4 basis. For e.g., for AOA the limit may be Rs. 10 Lakhs, with AOY going up to 10 Lakhs, 20 Lakhs, 30 Lakhs or 40 Lakhs. 3. The insured has to bear a compulsory excess of 0.5% in case of industrial risks (minimum Rs. 1000 & max Rs. 100,000). 4. Usually, the indemnity is restricted to only that which arises out of accidents during the period of insurance and first claimed, in writing, during the period of insurance.
5. The policy can cover the insured only against legal liabilities & other than that, which is covered under the Public Liability Insurance Act. 6. Indemnity is also provided only for accidents occurring in India & those covered in Indian Law and in respect of accidents caused only to third parties. 7. The important exclusions of are: a) Product liability b) Pollution liability c) Transportation of hazardous goods liability d) Injuries to employees – covered under ESIC/Workmen CompensationPremium ratesPremium rates for indemnity insurances are based on the following factors: 1. Risk group 2. Limits of indemnity AOA 3. The ratio of AOA to AOY 4. Turnover of the insuredRisk categories are divide into four broad groups:Group I: Biscuit factories, coir factories, glass and ceramic factories and silkfactories etc.Group II: Breweries, cigarette factories, shoe factories, sugar factories etc.
Group III: Distilleries, man-made yarn factories, fiber manufactures, paperand card board mills etc.Group IV: Celluloid goods manufacturing, fertilizer factories, matchfactories, synthetic rubber factories etc. The rates are the lowest on Group I risks and move up along the scalerising towards the Group IV risks.TURNOVERTurnover is defined for most risk groups for the purpose of indemnitypolicies:For manufacturing unit it is entire gross sales turnover, including all leviesof the manufacturing unit and the taxes for handling hazardous goods, if any.For godowns and warehouses, the turnover would mean the total annualrentals receipts of the premises building or store house.For transport operators the term turnover would mean the total annual freightreceipts.For all other types of business the turnover would mean the total annualgross receipts.While the rate for insurance ranges between 0.70 rupees per mille to 0.80rupees per mille, the turnover loading is added to such a rate as follows: • For turnover up to Rs.1 Cr, 0.12 per mille subject to a minimum of Rs.1200. • For turnover between Rs. 1Cr to 5Cr, a sum of Rs 100 plus 0.084 per mille on Rs. 4 Cr
• For turnover between 5Cr to 10 Cr, Rs. 4560 plus 0.072 per mille on Rs. 5 Cr. Over and above the premium rate and amount equivalent to the premium is paid by the insured towards an Environment Relief Fund of the government. This fund pays relief when it exceeds the amount payable under this policy. PROFESSIONAL LIABILITY INSURANCEProfessionals that operate their own businesses need professional liabilityinsurance in addition to an in-home business or business owner’s policy.
This protects them against financial losses from lawsuits filed against themby their clients.Professionals are expected to have extensive technical knowledge or trainingin their particular area of expertise. They are also expected to perform theservices for which they were hired, according to the standards of conduct intheir profession. If they fail to use the degree of skill expected of them, theycan be held responsible in a court of law for any harm they cause to anotherperson or business. When liability is limited to acts of negligence,professional liability insurance may be called "errors and omissions"liability.Professional liability insurance is specialty coverage. Professional liabilitycoverage is not provided under homeowner’s endorsements, in-homebusiness policies or business owners policies (BOPs).Professional indemnity insuranceIf you are in the business of selling your knowledge or skills, you may wantto consider taking out professional indemnity insurance. The professionalliabilities of an organization, can often be as significant or even greater thanthe general liabilities, particularly where there is the potential for substantialeconomic loss.General liability policies specifically exclude claims arising for breach ofprofessional duty, particularly where there is a fee paid for such advice orservice. They also do not provide cover where there is only a financial loss,not personal injury or property damage. Pure financial loss liabilities are
generally insurable under a specialist professional indemnity insurancepolicy.Many organizations have exposures where they may be sued by third partiesfor causing a financial loss as a result of their business activities. Whilst notinitially apparent, this may include such things as: • design work; • provision of advice or technical information; or • management of a project on behalf of other joint venturers.The Trade Practices Act also creates an exposure for false and misleadingconduct in the promotion and sale of goods and services. All of the potentialexposures need to be carefully reviewed to determine how serious a risk theyrepresent to the organization, and/or what (if any) protection can be providedunder contracts with third parties. Where there is still a significant riskexposure, professional indemnity insurance cover should be sought.The professional indemnity policy indemnifies the insured for amountswhich they become legally liable to pay as a result of any actual or allegednegligent act, error or omission in the conduct of their business orprofession. Costs and expenses incurred to investigate, defend or settle anyclaim are also included, in some circumstances in addition to the policy limitotherwise inclusive of the limit.What you will be covered forThis protects your business against compensation sought by a client if youhave made mistakes or are found to have been negligent. Professionalindemnity insurance will also cover any legal costs.
Most professionals carry professional indemnity cover. If you are a lawyer,accountant or financial adviser, then you must have professional indemnityinsurance. Professionals such as architects, consultants and designers oftenopt for such cover as well.One important aspect to bear in mind when considering professionalindemnity insurance is that, because there can often be a long delay betweenan event and a subsequent claim; you need to be covered both at the time ofthe event and when the claim is made.This means that if you plan to cancel your policy when you close yourbusiness or retire you may need to arrange "run off" cover for a period oftime afterwards.Also, if you plan to change insurers, you will either need to arrange run offcover or get agreement from your new insurer to accept new claims for priorincidents.Keep everything well documentedOne way to minimize such claims is to make sure projects are welldocumented. Ensure that you set out specific responsibilities in yourcontracts with clients beforehand and deal with complaints promptly.As this is a specialist area of insurance you should take advice from asuitably experienced insurance broker. PRODUCT LIABILITY INSURANCEProduct Liability
If you manufacture or supply goods, there’s always the possibility that yourproduct could cause damage to a third party – that could be property oranother person. A small defect could open you up to massive claims, so thiscover is vitally important for product manufacturers.Look for a policy that guards you against safety claims, manufacturingquality, spoilage and indemnity costs (medical bills and so on). Andremember Product Liability is designed to cover you against unforeseencircumstances, if you simply make an inferior product or supply bad servicesthen you’re not going to be able to make a claim.You can reduce your premiums by taking quality control measuresbeforehand, and you should make sure your insurer knows of any measuresyou’ve taken – it could affect your premiums.In product liability insurance, a product is defined as any physical item thatis sold or given away.Products must be "fit for purpose", and under the Consumer Protection Act1987 you are legally responsible for any damage or injury that a productyou supply may cause.Your responsibilitiesIf you supply a product and something goes wrong with it, claimants arelikely to try to claim from you first, even if you did not manufacture theproduct.
The nature of risk, i.e. the viability of a claim and the premium, is affectedby who the product is sold to, how and where it is used and any warnings orlabels that are provided.What the insurance coversThe product liability insurance that you buy covers you against anycompensation awarded as a result of damage or injury caused by yourproduct.Product liability covers you against unforeseen circumstances. If yousimply make an inferior product, then you may not be able to make a claim.Bad workmanship is not covered either.How much cover should you take out?Most businesses have cover of between Rs.0.5 million and Rs.5 million, butthe norm is Rs.2 million.In order to reduce your premiums you should put in place quality controlmeasures. This not only ensures lower premiums, but also reduces the risk ofcompensation claims and the loss of your reputation in the marketplace.Evaluation of product liability insuranceIf you are involved in producing a product then you should consider havinginsurance to cover any serious defects that might emerge. We live in a verylitigious society and failure to take this precaution could see on the receivingend of some very unwelcome lawsuits. Product liability insurance protectscompanies from customers filing claims stating that they have been harmedby one of your products.
This is a fairly specialist area of the insurance market, and like all specialistsis therefore expensive, but the costs of defending your company in court willalmost certainly be greater. And should a case go against you the damagescould run into millions. In most industries product liability insurance is notcompulsory however certain government and specific contracts may insist.A good policy should guard you against:• Claims made regarding safety• Claims made regarding manufacturing quality or quality of service• Spoilage• Indemnity costs - medical bills etc.Product liability, like most insurance, is designed to cover you againstsomething untoward. If you simply make an inferior product or supply badservices then you are not going to be able to claim.It is also crucial to realize that simply having product liability insurance doesnot relieve you from the responsibility of taking statutory due care in yourbusiness operations. It is not a license to take your eye off the ball. Yourinsurer will also require you to observe certain standards (use of trainedstaff, proper equipment etc).Precisely how much you should cover your company for is up to you.Naturally you will be looking at large sums, and it is unlikely that you willfind product liability part of another policy unless you have alreadyspecified it. To find a provider you would be best advised to use a broker orgo to your local business association.
PUBLIC LIABILITY INSURANCE (ACT) POLICYPublic Liability insurance covers you against any claims made against yourbusiness – for example if you were held legally liable for personal injury, orfor damage done to property. The insurance will also cover you for any legalcosts associated with defending claims against your business.Even if you work from home it may be that you need Public Liabilityinsurance. If clients often visit you at your home office then this policy willcover you if they injure themselves while they’re on your premises (it couldbe something as daft as tripping over the carpet!). And don’t forget if youregularly work off-site your policy should apply to off-site as well as on-sitejobs.The premiums will depend on the type of business, your turnover and thenumber of employees. The problem is working out what level of protectionyou think you need. The key is not to underestimate – Rs.1 crore may soundlike a lot of cover, but if you find yourself facing a series of claims from agroup of people the legal fees will be large.It’s also vital to keep your Public Liability policy up-to-date to reflect anychanging circumstances in your business. As your business expands you’relikely to find your risks grow too.
Evaluation of Public Liability Insurance Owning your own business has its responsibilities as well as its rewards. One of these is to ensure that the public doesnt suffer from your activities. In an imperfect world however things do go wrong so it makes sense to protect your interests from expensive legal claims from members of the public that could seriously damage your cash flow. This type of financial protection is called public liability insurance.• Depending on the type of business you are operating, public liability insurance can be compulsory. It can often be included in other insurance packages. Properly drawn up Public Liability Insurance covers you for your legal responsibility for Injury, caused by the operations of your business Illness or disease to any member of the public loss and damage to a member of the publics property - pollution claims etc.•• Public Liability Insurance (Act) 1991:• Object of act• To provide for public liability insurance for the purpose of providing immediate relief to persons affected by accident occurring while handling any hazardous substances.•• Policy for Whom• Any person or business handling hazardous substances.
• Handling• Manufacture, processing, treatment, packaging, storage, transportation, Use, Collection, Destruction, Conversion, Offering for sale, Transfer or like.•• Hazardous Substance• Substance defined in EPA 1986 exceeding threshold quantity.•• Compensations payable• • Medical Expenses: Rs 12,500/- • Death: Rs 25,000/- • Property: Rs 6000/- • PTD,PPD: % of disability X Rs 25,000/- • TPD: Rs 1000/- pm, Max: 3 months. • • Features • • Indemnifying the Insured against the statutory liability arising out of accidents occurring due to handling hazardous substances as provided in the PLI Act. • Maximum Indemnity available is AOA:5 Crores and AOY:15 Crores. • Rating depends on turnover and limit of indemnity. • 100% contribution to Environment Relief Fund.
Key points: Finding providers is no great problem as there are literally hundreds. Naturally you should look to use a company that has experience in your particular line of business and who will appreciate the challenges and risk your business faces. However the fact that you have public liability insurance does not relieve you from the responsibility of taking due care in your business operations. You are still obliged to live up to your legal responsibilities. The key challenge of this type of insurance is gauging how much you think you will need. Obviously you will have to judge on the basis of what you think your risk is, but do not underestimate. One million pounds might seem like a lot of cover, but if you find yourself facing a series of claims from a group of people then the legal fees alone could cost you a fortune.••••
DIRECTORS AND OFFICERS…… only those (directors) who have been involved in litigation are awareof the significant cost which can arise regardless of the directors ultimateliability or guilt and the fact that civil damages awarded may be enormous.Francis Zulueta in the Independent Director- Handbook and guide tocorporate governance.Directors and officers of companies and other organizations have variousduties, responsibilities and powers in connection with their position. In mostcases these are set out in a job description or terms of reference. As a resultthey can be held responsible for a range of issues including:• health and safety• data protection• maintaining satisfactory accounts• fraud• negligenceIf your companys directors or officers are found to have inadvertently actedoutside their terms of reference and this gives rise to a claim, then anycompensation and legal fees will be covered by directors and officersliability insurance. If the act was deliberate, then it may not be covered bythe policy.In a recent spate of litigation, a number of adverse court verdicts regardingthe liability of directors and officers of companies to a third party werepassed where the directors and officers were held personally liable forpayment of compensation to the third party. Ordinarily, the directors and
officers are bound by duty towards the company itself, shareholders,employees, creditors, customers, competitors, members of the public,government and other regulatory bodies. Any breach or non-performance inthe duties can result in claims against the companies and/or its directors ofthe company by reason of any wrongful act in their respective capacity. TheDirectors and Officers Liability Insurance policy has been designedspecifically to meet any financial liabilities imposed upon them.Suitable forThis policy is necessary for directors and officers of every company if theywish to avoid potential litigation owing to • Failure of supervision. • Inaccuracy in statements of financial accounts. • Lack of judgments and good faith. • Mismanagement of funds. • Mis-statements in prospectuses. • Allotment of shares. • Unauthorized loans or investments. • Failure to obtain competitive bids. • Imprudent expansion resulting in a loss. • Using inside information. • Unwarranted dividend payment, salaries or compensation. • Misleading statements filed with the stock exchange. • Misrepresentation in acquisition agreement for the purchase of another company.
• Wrongful dismissal of an employee.Risks coveredThis policy covers all claims made in event of • Mergers, takeovers and divestment. • Liquidation. • Changes in control of shareholding. • Share issues. • Shareholder claims. • Misdeeds of co-directors. • Trustee accountability and responsibility. • Customs and excise allegations. • Administrative liabilities. • Termination of employment. • Disposal of old firm/ entry of new owners.Compensation OfferedThe extent of indemnity being severely restricted by the Companies Act willreimburse the extent of legal costs expended only if the Director/ Officersuccessfully defend the act taken against him.Also, coverage is available on a claims made basis and applies only toclaims made against the Board of Directors during the policy period,irrespective of when the wrongful act occurred.The cover applies to:
• Liabilities arising from any claim made against Directors and/ or Officers of the company by reason of any wrongful act in their respective capacity. • Liabilities against the company where it is required to indemnify the Directors/ Officers pursuant to common or statutory law provisions or Memorandum and Articles of Association. • The company and its subsidiaries that are under the common control of the Directors/ Officers.Exclusions • The policy will not pay for the losses arising from any claim. • Prior and pending litigation and claims submitted under previous policies. • Bodily injury, sickness, disease, emotional distress, death, damage or destruction of tangible property including loss. • Insured v/s Insured. viz. Directors suing each other. • Illegal personal profit and remuneration. • Deliberate, dishonest or fraudulent acts. • Pollution and/ or contamination • Insider trading. • Outside directorship (can be covered with specific information).
LIABILITY INSURANCE IN ICICI LOMBARDPublic Liability- Industrial risksScope of coverLegal liability of the Insured towards damages to third party with respect to: accidental death bodily injury or disease
loss or damage to property. legal costs and expenses incurred with the prior consent of the Insurer and within the limit of indemnity. Sum InsuredDepending on exposure, the Proposer has to fix two limits of indemnity as under (for both premises and transportation): any One Accident (AOA) any One Year (AOY)AOA and AOY can be in ratio of 1:1, 1:2, 1:3 or 1:4. It is not permissible to issue the policy with unlimited liability.PremiumPremium depends on: risk group limits of indemnity selected ratio of limits number of locations annual turnover.Significant Exclusions
This Policy does not cover liability arising out of or in connection with: pollution any product personal injuries such as: * libel * slander * fines * penalties punitive or exemplary damages transportation of materials.ExcessPolicy is subject to a compulsory excess of 0.5% of AOA limit, subject to a maximum of Rs 3,00,000/- and minimum ofRs 2000/-. Higher excess opted on a voluntary basis qualifies for a discount in the premium level.Main Extension Industrial Seepage, pollution and contamination extension Carriage of effluents (outside the premises) extension Transportation extension Technical collaborators extension Act Of god Perils extension.
Non industrial risksScope Of CoverThis Policy broadly covers:Legal liability of the Insured towards damages to the third party with respect to: accidental death bodily injury or disease loss or damage to propertyLegal costs and expenses incurred with the prior consent of the Insurer and within the limit of indemnity. Premium Premium chargeable depends on the: risk group limits of indemnity selected ratio of limits number of locations annual turnover
Significant ExclusionsThis Policy does not cover liability arising out of or in connection with: pollution any product any professional services deficiency personal injuries such as libel, slander, fines, penalties punitive or exemplary damages fines transportation of materialsExcessPolicy is subject to compulsory excess of 0.25% of AOA limit, subject to a: Maximum of Rs 1,00,000/- Minimum of Rs 1000/-Higher excess opted on a voluntary basis qualifies for discount in premium.Main ExtensionThese include: goods kept in Custody of Insured Extension food and Beverages Extension industrial Seepage, Pollution and Contamination Extension sports facilities, Swimming Pool and other facilities Extension
transportation Extension act Of God perils ExtensionProduct LiabilityIntroductionSafety and reliability of products are an important concern to consumers, sellers & manufacturers. Faulty products canbe hazardous for the consumers health & property. The manufacturer/ seller of faulty could be held liable for suchdamages, exposing themselves to financial losses.Product liability insurance protects the companies exposed to above risk by financially assisting policyholders in suchsituations.
PremiumPremium chargeable depends on the: Risk group (products to be covered) Turnover of products (for proposed period of insurance) Sales territories Limits of indemnity selected Ratio of limits Quality control system & R&D strength of the insured Claims experienceSignificant ExclusionsThis Policy does not cover liability arising out of or in connection with: Product efficacy Product recall Product guarantee Pure financial loss Terrorism, war & SRCC Any professional services deficiency Personal injuries such as libel, slander Fines, penalties and punitive or exemplary damages
ExcessPolicy is subject to compulsory & minimum excess of 0.5% of AOA limitDiscountHigher excess opted on a voluntary basis qualifies for discount in premium.Main Extension Limited named vendors liability North American jurisdiction clause (covering exports to American countries) Technical collaborators clausePublic LiabilityScope of coverThis Policy broadly covers the Owner’s statutory liability on the no-fault principle for the following conditions resultingfrom an accident while handling any hazardous substances: death of or injury to any person damage to property
Premium Premium charged depends on two factors: limit of indemnity selected annual turnover (Gross Sales of all goods including all levies and taxes) A matching amount should be contributed towards the Environment Relief FundSignificant ExclusionsThis Insurance Policy does not cover liability arising out of willful or intentional non-compliance of any statutoryprovisions, with respect to fines and penalties.Workmens CompensationScope of coverThe policy, provides for two forms of insurance viz,Table ‘A’ - Indemnity against legal liability to all employees (whether or not coming within the definition of theterm Workmen) under the W.C.Act 1923 and subsequent amendment to the said Act prior to the date ofissue of the policy, the Fatal Accidents Act, 1855 and at Common Law.Table ‘B’ - Indemnity against legal liability under the Fatal Accidents Act, 1855 and Common Law. (Table ‘B’policies may not be issued to cover employees who fall within the definition of “Workmen” under theWorkmen’s Compensation Act, 1923 as amended). (Code: Misc 10)Sum InsuredThe policy does not have a Sum Insured but the estimated “Earnings” of theworkmen for the policy period is mentioned on the policy.
Main Extension Medical Expenses Occupational DiseasesDirectors & Officers LiabilityIntroductionDirectors and officers of a hold a position of trust are responsible towards the company, the shareholders, theemployees, and the public at large. They may become liable to pay damages in scenarios such as the following: Mis-statement in prospectus Inaccurate statement of financial conditions Errors in annual accounts Conflict of interest Lack of judgment, diligence, good faith Mismanagement of funds Unfair allotment of shares Using insider information Unwarranted dividend, salary, compensation payments Unfair dismissal of an employeeOur Directors and Officers Liability policy protects the personal fortunes of individual directors and officers, in respectof personal liabilities arising out of their wrongful acts like breach of duty, breach of trust, neglect, error, misstatementor misleading statement.
Salient Features Former, present, future directors are all covered. (All wrongful acts committed or alleged to have been committed). Parent company and existing subsidiary companies covered Defence costs payable (even in alleged criminal cases, if directors and officers are finally acquitted) Cover on claims: wrongful act committed or alleged to have been committed and all liability reported during the period coveredSum InsuredThe policy is a subject to the terms and conditions, advance defence costs and allows for settlements / judgements /awards against insured persons for their wrongful acts.The insurance policy has two coverage clauses: Legal liability towards claims made against the Insured Person (s) to the extent not indemnified by the Insured Organisation Reimbursement to the Insured Organization on account of indemnification to each Insured Person. The policy additionally covers heirs, estates & legal representatives and spousal liabilities.PremiumPremium chargeable depends on the:
Limits of indemnity Industry of the proposer Management perception to various stakeholders Capital structure of company: Source of Shareholder funds - Foreign v/s Domestic exposure, Debt structure Credit rating of the company to honour future financial commitments Clientele of the proposer Annual turnover Auditors of the company Information gathered about the company from public sourcesSignificant ExclusionsThis policy does not cover: Liability for criminal wrongs Fines and penalties for civil wrongs Prior or pending litigation Suits or arising from person who is a major shareholder Bodily injury/ property damage · Infringement of intellectual property rightsMain Extension
Crisis Communication Cover Risk Management Extension Pollution Defence Costs Extension Extended reporting Period Auto inclusion of new subsidiariesProf. Indemnity for DoctorsProtection for the experts, by the expertsFor a patient, his doctor is someone who promises good health by putting him on the right fitness condition when anemergency lands. Unfortunately, human error cannot be eliminated and doctors are exposed to the risk of claims fromclients who have suffered loss due to neglect, error or omission.In todays litigious world, claims can pose a significant threat to the financial security for a medical practitioner. Yourexpertise is protecting the health of your clients. Our expertise is advising you how to protect your professional interest.Our Professional Indemnity for Doctors Policy protects you against Claims arising out of bodily injury or death caused by error, omission, negligence Legal liability including Defence costs (costs, fees, expenses) incurred while investigation, cost of representation, compensation etc. Scope of cover This Policy broadly covers: Bodily injury and / or death of any patient caused by or alleged to have been caused by error, omission or negligence in professional service rendered or which should have been rendered by the insured doctor Legal costs and expenses
Sum InsuredDepending on exposure, the proposer has to fix two limits of indemnity under the policy: Any One Accident (AOA) Any One - Year (AOY)AOA and AOY can be in ratio of 1:1 or 1:2.PremiumPremium chargeable depends on the: Risk group of doctor Limits of indemnity selected Ratio of limits Significant Exclusions This Policy does not cover liability arising out of or in connection with: Criminal acts Acts committed under Influence of intoxicants / narcotics Weight reduction Plastic surgery HIV Aids Non compliance with statutory provisions Punitive and exemplary damages Radioactivity
Blood Banks Scope and jurisdiction 0.25 % of AOA in India only. PRIMARY DATA The Liability Insurance MarketLiability insurance is not a new concept. It has been there for quite a whilebut has been virtually non-existent. However with the emergence ofmultinationals and Indian companies going abroad liability is slowly butsurely picking up speed in the ever widening insurance market. “Thrust oncorporate governance to push demand for liability insurance”. The Indian judiciarymay be saddled with huge cases, but this country is primarily a non-litigious country. Indian shareholders do not takerecourse to law for resolving their grievances. They still prefer to go to Sebi, RBI or SROs like Amfi etc. The regulatorshave quasi-judiciary powers and they do address the grievances / complaints and impose penalties. But they escape civilor criminal punishments.Further, most of the Indians or for that matter, Indian firms or companies tend to believe that they are immune tolitigations and, therefore, there is no need for such an insurance cover. At best, they prefer to rely on their legal advisorsor lawyers in case of exigencies. However, the thrust on corporate governance , initiation of legal reforms, increasing
awareness of shareholder rights, and India becoming more and more integrate with the global economy will continue topush demand for this product.My research revealed around 100-odd companies have availed Directors &Officers Liability cover and almost all of these companies had some overseasexposure. Either these companies had a strong international presence or theyhad a GDR or ADR listing. We did not come across any domestic companieshaving taken a D&O cover. If one considers a percentage increase in thenumber of companies having taken a D&O cover, it is over 100 per cent to200 companies.But, if one juxtapose this to international practices, this is minuscule. Forinstance, in the US and other matured markets over 90 per cent of thecompanies listed on the bourses have a D&O cover. Compare this to over6,000-7,000 listed companies on the BSE / NSE; the number 200 looksmicroscopic.In India almost all general insurance companies provide liability insuranceservices as they have realized the importance and scope of this product.Liability insurance constitutes of just about 10% to 11% of their overallbusiness but the companies are confident that this figure will rise in thefuture as people are beginning to realize the importance of liability insurancein their day to day lives.
Liability insurance other insurance Survey ReportThe following survey was carried out to analyze the views of the commonpeople about Liability Insurance, to find out their awareness about theproduct as well as their recommendations.Research methodologyNumber of people: 50Area covered: Malad, Kandiwali & BoriwaliOccupation: Mostly businessmen and the rest were professionalsNote: none of these people have taken liability insurance.1. Are you aware of Liability Insurance?
Yes 29% No 71%2. looking at our present legal system do you think there is scope for liabilityinsurance in India? Yes 30% No 43% Cant say 27%3. Do you think Liability Insurance will be beneficial or is it just a gimmick? Beneficial 69% Gim m ick 31%4. will you consider taking up liability insurance?
Yes 21% No 59% Cant say 20%Final Analysis:It is evident from this survey report that majority of the people are not awareabout Liability insurance and the people who are aware of it are hesitantwhen it comes to buying Liability insurance because of the legal system andvarious other factors that are present in India which work against Liabilityinsurance. However they are into agreement that Liability insurance will bebeneficial if taken up. Such mixed reactions only make one suggestion thatthe insurance companies market such products more efficiently and simplifyLiability insurance so that it is easier for the layman to understand Liabilityinsurance.
CONCLUSIONConventionally, Liability insurance concerned itself with the workplace andissues arising out of working conditions, death or accident at work andunforeseen incidents while in employment. More recently, however, thirdparty Liability in damages for suits filed against manufacturers by theircustomers, as well as similar liability of professionals towards the users oftheir services has become a matter of insurable interest. Consumer courtsare a new reality that insurers are finding opportunities in. the latestmanifestations of this liability issue is shareholder activism that is causingDirectors and Officers of companies to cover themselves against legal suitsin case of negligence of duties.
BIBLIOGRAPHY Insurance Products and Services (Indian institute of banking and finance) Fundamentals of insurance (P. K. Gupta) Corporate Insurance ( V. Kumaraswamy) WIBLIOGRAPHY www.businesslink.com www.icicilombard.com