• Concept of Liability Insurance • Utility in the Indian Market • Product Awareness Survey • Future of Liability Insurance in India

1. NAGINDAS COLLEGE OF COMMERCE, ARTS
AND MANAGEMENT STUDIES
BHADRAN 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

2. ACKNOWLEGEMENTS
When 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 various
institutions and insurance companies who provided me various contents and
valuable suggestions.

3. 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 large
number 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.

4. 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

5. 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—for
injuries that happen to other persons while on your premises. You may be liable for injuries or harm to customers and
employees, as well as other individuals who visit or utilize your business premises. In some cases, you may even be liable for
injuries that occur to people who trespass (illegally enter your business or property) and become injured. Because of the wide
variety 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 a
number 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 insurance
may even protect you from claims of personal injury, such as libel and slander, if you are in an industry at-risk for these, and
have the proper addendums to your
basic coverage.
Before talking to an insurance agent or broker about liability
insurance, consult industry organizations and other small business owners to
find out what types of liability coverage’s they recommend. What are the
liability risks for your industry? What is it most important for you to insure
against, 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 your
employees strikes another car and causes injury to the other driver and her
property. You are liable to pay for injuries and property damages caused by
your employee, so having the right liability coverage can save you time, money
and headaches. It is important to remember that you can be sued for injuries on your premises even if you took “reasonable
care” to prevent them.
For Example:

6. Your employees do heavy lifting at your work place, and one of them is injured while putting a large box on
a shelf. Even though you have provided your employees with ‘proper lifting training’ and weight belts and gloves, you may
still 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 what
sorts of liability risks your business runs. After determining what your risks are, your broker or agent will be able to help you
choose policies to protect yourself and your business from liability risks. Be sure to review your policies carefully, note what
is 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 risk
transference. Originally, individuals or companies that faced a common peril
formed a group and created a self-help fund out of which to pay
compensation should any member incur loss. The modern system relies on
dedicated carriers to offer protection against specified perils in consideration
of a premium. Liability insurance is designed to offer specific protection
against 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 insurance
contract. In general, damage caused intentionally and contractual liabilities
are not covered under liability insurance policies. When a claim is made, the
insurance carrier has the right to defend the insured. The legal costs of a
defense are not affected by any policy limits, which is useful because they
can be significant where long trials are held to determine either fault or the
amount of damages.

7. OVERVIEW OF LIABILITY INSURANCE
In many countries, liability insurance is a compulsory form of insurance for
those at risk of being sued by third parties for negligence. The most usual
classes of mandatory policy cover the drivers of vehicles, those who offer
professional services to the public, those who manufacture products that
may be harmful, and those who offer employment. The reason for such laws
is that the classes of insured are deliberately engaging in activities that put
others at risk of injury or loss. Public policy therefore requires that such
individuals should carry insurance so that, if their activities do cause loss or
damage to another, money will be available to pay compensation. In
addition, there are a further range of perils that prudent people insure against
and, consequently, the number and range of liability policies has increased
in line with the rise of contingency fee litigation offered by lawyers.
Public Liability Insurance Act of 1991 defines the scope of liability
insurance in India. Mostly these relate to work situations and handling of
hazardous substances. However, in the light of today’s movement towards
governance and social responsibility of corporate, liability insurance issues
have begun to reach even the Board Room. This project examines the extent
of insurance available to cover the risks of public liability.

8. WORKING OF LIABILITY INSURANCE
The cost of insurance - known as the premium - is typically worked out
using a book rating. A book rating is calculated using a base rate, which
includes the insurer's costs and reflects their appetite for your particular type
of business - if they want your type of business the rate will be less than if
they don't.
The premium is also calculated on the insurer's estimate of the level of risk
attached to a particular business or industry area.
The premium will be affected by factors such as your claims history, the size
of the perceived risk and your approach to risk management.
Use our interactive Health & safety performance indicator tool to find out
how well you're 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 businesses
by lumping good and bad together - small businesses with a good record
may be adversely affected by this. Your own safety record and approach to
risk management can minimize the effect of this.

9. TYPES OF LIABILITIES
Insurance is available across several types of liabilities, these are also known
as 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.

10. 5. Product liabilities: These are liabilities that could arise from the sale
of products to customers and resulting damage to any customer due to
a 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 under
such 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.

11. EMPLOYERS LIABILITY INSURANCE
If you are employer, you are legally required to take out adequate
employer’s liability insurance...It ensures that, should an employee (current
or former) be injured at work or become ill as a result of their work and
decides to sue you for compensation; there is at least a minimum level of
insurance to cover the claim. Failure to take out an insurance policy which
complies with the law can result in you being fined.
CONDITIONS
As with any insurance policy there will be a number of conditions attached to which will be
tailored to your business. Certain conditions, however, cannot be imposed. Your insurer cannot
refuse to pay compensation: Purely because you have not provided reasonable protection
against injury or disease. You cannot provide certain information to the insurer You have done
something they told you not to do You have not done something they told you to do You have not
met any legal requirement connected with protection of your employees However, if you haven't
complied with you're 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 the
compensation.
NOTIFICATION

12. Your insurer will give you a certificate of employers' liability insurance. This must clearly state the
minimum level of cover provided and the companies it covers. A copy of this certificate must be
displayed where employees can easily read it.
COVER
You must be insured for at least 5Cr but once you've assessed your risks and liabilities you may
decide you need more than this. Most insurers offer cover of at least 10Cr.You can split the cover
between different insurance companies - as long as the total is at least 5Cr. Bear in mind that the
minmim level of cover includes costs so you may want to buy additional insurance to cover this.
EXCEMPTIONS
Most public organizations such as Government departments and local authorities, health service
bodies 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 to
family 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 the
insurance unless your family business has been incorporated as a limited company.
FOR WHOM
You need to take out insurance for all your employees. This is usually straightforward but if you
have self-employed people working for you on a regular basis they may be covered to. Their tax
status or job title is irrelevant. What matters if the real nature of the relationship you have with
them and the degree of control you have over the work they do. There are no definite rules, but
the following table should help you work out whether or not someone is an employee for the
purpose of employers liability insurance: You will need employers liability insurance if some or all

13. of the following statements apply You will not need employers liability insurance if some or all of
the following statements apply You deduct National Insurance and tax from the money you pay
them You do not deduct tax or National Insurance (though this alone is not conclusive proof) You
have the right to control where, when and how they work They do not work exclusively for you
supply most materials and equipment They supply most of the equipment and materials they
need to do for the job You have right to the profits and suffer the losses your worker makes They
are clearly in business for personal benefit You hire that person to do the job and the cannot send
a substitute in their place They can employ a substitute when they are unable to do the work
themselves They are treated as other employees, e.g. they enjoy the same terms and conditions
You normally don't 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 work
experience programme. If this applies to you, inform your insurance company and consider taking
out insurance as they may be classed as employees. You only need to insure domestic help such
as gardeners and cleaners if they work exclusively for you. If they have more than one client you
are probably exempt.
PERIOD
You must copy certificates of insurance for 40 years after their expiry date. This is because
claims can be made for diseases many years after the disease is caused. You must these
available to health and safety inspectors on request. This requirement only applies to policies in
force on 31 December 1998 or later. But you should retain any records relating to previous
insurance polices just in case.

14. INDUSTRIAL RISKS LIABILITY INSURANCE
Public Liability (industries)
Plan Details:
This Policy broadly covers:
Legal liability of the Insured towards damages to third party with respect to
accidental death, bodily injury or disease and loss or damage to property.

15. Legal costs and expenses incurred with the prior consent of the Insurer and
within the limit of indemnity.
Main Extensions
These include:
industrial Seepage, pollution and contamination extension, carriage of
effluents (outside the premises) extension, transportation extension,
technical collaborators extension, act of god, perils extension.
Sum Insured
Depending on exposure, the Proposer has to fix two limits of indemnity as
under (for both premises and transportation): Any One Accident (AOA) and
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.
Premium
Premium chargeable depends on the:
Risk group
Limits of indemnity selected
Ratio of limits
Number of locations
Annual turnover.
Excess
Policy is subject to a compulsory excess of 0.5% of AOA limit, subject to a
maximum of Rs 3,00,000/- and minimum of Rs 2000/-. Higher excess opted
on a voluntary basis qualifies for a discount in the premium level.
Exclusions

16. 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.
What can be insured
All industrial risks (other than risks rateable under Petrochemical Tariff)
having overall Sum Insured of Rs. 100 Crores and above in one or more
locations in India are eligible. This is a package policy with the following
covers:
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 Insurance
Buildings, Machinery, Furniture, Fixtures and Fittings & Electrical
Installations shall be on reinstatement value basis only. Stocks shall be
covered on market value basis. Facilities of declarations for stocks are not
available under this policy. Underinsurance on each to the extent of 15%
will be ignored. Compulsory Deductibles Material Damage. 5% of the
claim amount subject to minimum of Rs. 5 Lakhs and maximum of Rs. 50
Lakhs Business Interruption Fire Three days Gross Profit subject to
minimum of Rs. 5 Lakhs and maximum of Rs. 50 Lakhs Machinery
Breakdown
Depends on the type of industry and claims experience.
Voluntary Deductibles

17. As prescribed under IAR Tariff Extensions Following clauses may be
attached to the policy by adjusting or providing additional Sum Insured
where applicable Agreed Bank Clause Architects', Surveyors and Consulting
Engineers' Fees Clause, Designation of Property Clause, Escalation Clause
Omission to Insure Additions, Alterations or Extensions Clause, Temporary
Removal of Stocks Clause.
Exclusions
Destruction/damage by own fermentation natural heating or spontaneous
combustion, undergoing any heating or drying process, burning of property
insured by order of any public authority, explosion/implosion damage to
boilers, damage caused by centrifugal forces, forest fire, war and nuclear
group of perils, unspecified precious stones (upto Rs. 10,000), cheques,
currency etc. electrical files, consequential losses, theft during/after
operation of peril, mis-description, mis-representation, non-disclosure of
material 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:

18. 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.

19. 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
Compensation
Premium rates
Premium 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 insured
Risk categories are divide into four broad groups:
Group I: Biscuit factories, coir factories, glass and ceramic factories and silk
factories etc.
Group II: Breweries, cigarette factories, shoe factories, sugar factories etc.

20. Group III: Distilleries, man-made yarn factories, fiber manufactures, paper
and card board mills etc.
Group IV: Celluloid goods manufacturing, fertilizer factories, match
factories, synthetic rubber factories etc.
The rates are the lowest on Group I risks and move up along the scale
rising towards the Group IV risks.
TURNOVER
Turnover is defined for most risk groups for the purpose of indemnity
policies:
For manufacturing unit it is entire gross sales turnover, including all levies
of the manufacturing unit and the taxes for handling hazardous goods, if any.
For godowns and warehouses, the turnover would mean the total annual
rentals receipts of the premises building or store house.
For transport operators the term turnover would mean the total annual freight
receipts.
For all other types of business the turnover would mean the total annual
gross receipts.
While the rate for insurance ranges between 0.70 rupees per mille to 0.80
rupees 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

21. • 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 INSURANCE
Professionals that operate their own businesses need professional liability
insurance in addition to an in-home business or business owner’s policy.

22. This protects them against financial losses from lawsuits filed against them
by their clients.
Professionals are expected to have extensive technical knowledge or training
in their particular area of expertise. They are also expected to perform the
services for which they were hired, according to the standards of conduct in
their profession. If they fail to use the degree of skill expected of them, they
can be held responsible in a court of law for any harm they cause to another
person 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 liability
coverage is not provided under homeowner’s endorsements, in-home
business policies or business owners policies (BOPs).
Professional indemnity insurance
If you are in the business of selling your knowledge or skills, you may want
to consider taking out professional indemnity insurance. The professional
liabilities of an organization, can often be as significant or even greater than
the general liabilities, particularly where there is the potential for substantial
economic loss.
General liability policies specifically exclude claims arising for breach of
professional duty, particularly where there is a fee paid for such advice or
service. They also do not provide cover where there is only a financial loss,
not personal injury or property damage. Pure financial loss liabilities are

23. generally insurable under a specialist professional indemnity insurance
policy.
Many organizations have exposures where they may be sued by third parties
for causing a financial loss as a result of their business activities. Whilst not
initially 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 misleading
conduct in the promotion and sale of goods and services. All of the potential
exposures need to be carefully reviewed to determine how serious a risk they
represent to the organization, and/or what (if any) protection can be provided
under contracts with third parties. Where there is still a significant risk
exposure, professional indemnity insurance cover should be sought.
The professional indemnity policy indemnifies the insured for amounts
which they become legally liable to pay as a result of any actual or alleged
negligent act, error or omission in the conduct of their business or
profession. Costs and expenses incurred to investigate, defend or settle any
claim are also included, in some circumstances in addition to the policy limit
otherwise inclusive of the limit.
What you will be covered for
This protects your business against compensation sought by a client if you
have made mistakes or are found to have been negligent. Professional
indemnity insurance will also cover any legal costs.

24. Most professionals carry professional indemnity cover. If you are a lawyer,
accountant or financial adviser, then you must have professional indemnity
insurance. Professionals such as architects, consultants and designers often
opt for such cover as well.
One important aspect to bear in mind when considering professional
indemnity insurance is that, because there can often be a long delay between
an event and a subsequent claim; you need to be covered both at the time of
the event and when the claim is made.
This means that if you plan to cancel your policy when you close your
business or retire you may need to arrange "run off" cover for a period of
time afterwards.
Also, if you plan to change insurers, you will either need to arrange run off
cover or get agreement from your new insurer to accept new claims for prior
incidents.
Keep everything well documented
One way to minimize such claims is to make sure projects are well
documented. Ensure that you set out specific responsibilities in your
contracts with clients beforehand and deal with complaints promptly.
As this is a specialist area of insurance you should take advice from a
suitably experienced insurance broker.
PRODUCT LIABILITY INSURANCE
Product Liability

25. If you manufacture or supply goods, there’s always the possibility that your
product could cause damage to a third party – that could be property or
another person. A small defect could open you up to massive claims, so this
cover is vitally important for product manufacturers.
Look for a policy that guards you against safety claims, manufacturing
quality, spoilage and indemnity costs (medical bills and so on). And
remember Product Liability is designed to cover you against unforeseen
circumstances, if you simply make an inferior product or supply bad services
then you’re not going to be able to make a claim.
You can reduce your premiums by taking quality control measures
beforehand, and you should make sure your insurer knows of any measures
you’ve taken – it could affect your premiums.
In product liability insurance, a product is defined as any physical item that
is sold or given away.
Products must be "fit for purpose", and under the Consumer Protection Act
1987 you are legally responsible for any damage or injury that a product
you supply may cause.
Your responsibilities
If you supply a product and something goes wrong with it, claimants are
likely to try to claim from you first, even if you did not manufacture the
product.

26. The nature of risk, i.e. the viability of a claim and the premium, is affected
by who the product is sold to, how and where it is used and any warnings or
labels that are provided.
What the insurance covers
The product liability insurance that you buy covers you against any
compensation awarded as a result of damage or injury caused by your
product.
Product liability covers you against unforeseen circumstances. If you
simply 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, but
the norm is Rs.2 million.
In order to reduce your premiums you should put in place quality control
measures. This not only ensures lower premiums, but also reduces the risk of
compensation claims and the loss of your reputation in the marketplace.
Evaluation of product liability insurance
If you are involved in producing a product then you should consider having
insurance to cover any serious defects that might emerge. We live in a very
litigious society and failure to take this precaution could see on the receiving
end of some very unwelcome lawsuits. Product liability insurance protects
companies from customers filing claims stating that they have been harmed
by one of your products.

27. This is a fairly specialist area of the insurance market, and like all specialists
is therefore expensive, but the costs of defending your company in court will
almost certainly be greater. And should a case go against you the damages
could run into millions. In most industries product liability insurance is not
compulsory 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 against
something untoward. If you simply make an inferior product or supply bad
services then you are not going to be able to claim.
It is also crucial to realize that simply having product liability insurance does
not relieve you from the responsibility of taking statutory due care in your
business operations. It is not a license to take your eye off the ball. Your
insurer will also require you to observe certain standards (use of trained
staff, 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 will
find product liability part of another policy unless you have already
specified it. To find a provider you would be best advised to use a broker or
go to your local business association.

28. PUBLIC LIABILITY INSURANCE (ACT) POLICY
Public Liability insurance covers you against any claims made against your
business – for example if you were held legally liable for personal injury, or
for damage done to property. The insurance will also cover you for any legal
costs associated with defending claims against your business.
Even if you work from home it may be that you need Public Liability
insurance. If clients often visit you at your home office then this policy will
cover you if they injure themselves while they’re on your premises (it could
be something as daft as tripping over the carpet!). And don’t forget if you
regularly work off-site your policy should apply to off-site as well as on-site
jobs.
The premiums will depend on the type of business, your turnover and the
number of employees. The problem is working out what level of protection
you think you need. The key is not to underestimate – Rs.1 crore may sound
like a lot of cover, but if you find yourself facing a series of claims from a
group of people the legal fees will be large.
It’s also vital to keep your Public Liability policy up-to-date to reflect any
changing circumstances in your business. As your business expands you’re
likely to find your risks grow too.

29. 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 doesn't 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 public's 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.

30. • 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.

31. 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.
•
•
•
•

32. DIRECTORS AND OFFICERS
…… only those (directors) who have been involved in litigation are aware
of the significant cost which can arise regardless of the directors ultimate
liability or guilt and the fact that civil damages awarded may be enormous.
Francis Zulueta in the Independent Director- Handbook and guide to
corporate governance.
Directors and officers of companies and other organizations have various
duties, responsibilities and powers in connection with their position. In most
cases these are set out in a job description or terms of reference. As a result
they can be held responsible for a range of issues including:
• health and safety
• data protection
• maintaining satisfactory accounts
• fraud
• negligence
If your company's directors or officers are found to have inadvertently acted
outside their terms of reference and this gives rise to a claim, then any
compensation and legal fees will be covered by directors' and officers'
liability insurance. If the act was deliberate, then it may not be covered by
the policy.
In a recent spate of litigation, a number of adverse court verdicts regarding
the liability of directors and officers of companies to a third party were
passed where the directors and officers were held personally liable for
payment of compensation to the third party. Ordinarily, the directors and

33. 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 in
the duties can result in claims against the companies and/or its directors of
the company by reason of any wrongful act in their respective capacity. The
Directors' and Officers' Liability Insurance policy has been designed
specifically to meet any financial liabilities imposed upon them.
Suitable for
This policy is necessary for directors and officers of every company if they
wish 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.

34. • Wrongful dismissal of an employee.
Risks covered
This 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 Offered
The extent of indemnity being severely restricted by the Companies' Act will
reimburse the extent of legal costs expended only if the Director/ Officer
successfully defend the act taken against him.
Also, coverage is available on a 'claims made' basis and applies only to
claims made against the Board of Directors during the policy period,
irrespective of when the wrongful act occurred.
The cover applies to:

35. • 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).

36. LIABILITY INSURANCE IN ICICI LOMBARD
Public Liability- Industrial risks
Scope of cover
Legal liability of the Insured towards damages to third party with respect to:
accidental death
bodily injury or disease

37. loss or damage to property.
legal costs and expenses incurred with the prior consent of the Insurer and
within the limit of indemnity.
Sum Insured
Depending 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.
Premium
Premium depends on:
risk group
limits of indemnity selected
ratio of limits
number of locations
annual turnover.
Significant Exclusions

38. 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.
Excess
Policy is subject to a compulsory excess of 0.5% of AOA limit, subject to a maximum of Rs 3,00,000/- and minimum of
Rs 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.

39. Non industrial risks
Scope Of Cover
This 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 property
Legal 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

40. Significant Exclusions
This 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 materials
Excess
Policy 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 Extension
These 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

41. transportation Extension
act Of God
perils Extension
Product Liability
Introduction
Safety and reliability of products are an important concern to consumers, sellers & manufacturers. Faulty products can
be hazardous for the consumers' health & property. The manufacturer/ seller of faulty could be held liable for such
damages, exposing themselves to financial losses.
Product liability insurance protects the companies exposed to above risk by financially assisting policyholders in such
situations.

42. Premium
Premium 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 experience
Significant Exclusions
This 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

43. Excess
Policy is subject to compulsory & minimum excess of 0.5% of AOA limit
Discount
Higher excess opted on a voluntary basis qualifies for discount in premium.
Main Extension
Limited named vendor's liability
North American jurisdiction clause (covering exports to American
countries)
Technical collaborator's clause
Public Liability
Scope of cover
This Policy broadly covers the Owner’s statutory liability on the no-fault principle for the following conditions resulting
from an accident while handling any hazardous substances:
death of or injury to any person
damage to property

44. 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 Fund
Significant Exclusions
This Insurance Policy does not cover liability arising out of willful or intentional non-compliance of any statutory
provisions, with respect to fines and penalties.
Workmen's Compensation
Scope of cover
The 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 the
term Workmen) under the W.C.Act 1923 and subsequent amendment to the said Act prior to the date of
issue 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 the
Workmen’s Compensation Act, 1923 as amended). (Code: Misc 10)
Sum Insured
The policy does not have a Sum Insured but the estimated “Earnings” of the
workmen for the policy period is mentioned on the policy.

45. Main Extension
Medical Expenses
Occupational Diseases
Directors & Officers Liability
Introduction
Directors and officers of a hold a position of trust are responsible towards the company, the shareholders, the
employees, 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 employee
Our Directors and Officers Liability policy protects the personal fortunes of individual directors and officers, in respect
of personal liabilities arising out of their wrongful acts like breach of duty, breach of trust, neglect, error, misstatement
or misleading statement.

46. 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 covered
Sum Insured
The 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.
Premium
Premium chargeable depends on the:

47. 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 sources
Significant Exclusions
This 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
rights
Main Extension

48. Crisis Communication Cover
Risk Management Extension
Pollution Defence Costs Extension
Extended reporting Period
Auto inclusion of new subsidiaries
Prof. Indemnity for Doctors
Protection for the experts, by the experts
For a patient, his doctor is someone who promises good health by putting him on the right fitness condition when an
emergency lands. Unfortunately, human error cannot be eliminated and doctors are exposed to the risk of claims from
clients who have suffered loss due to neglect, error or omission.
In today's litigious world, claims can pose a significant threat to the financial security for a medical practitioner. Your
expertise 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

49. Sum Insured
Depending 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.
Premium
Premium 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

50. Blood Banks
Scope and jurisdiction
0.25 % of AOA in India only.
PRIMARY DATA
The Liability Insurance Market
Liability insurance is not a new concept. It has been there for quite a while
but has been virtually non-existent. However with the emergence of
multinationals and Indian companies going abroad liability is slowly but
surely picking up speed in the ever widening insurance market. “Thrust on
corporate governance to push demand for liability insurance”. The Indian judiciary
may be saddled with huge cases, but this country is primarily a non-litigious country. Indian shareholders do not take
recourse to law for resolving their grievances. They still prefer to go to Sebi, RBI or SROs like Amfi etc. The regulators
have quasi-judiciary powers and they do address the grievances / complaints and impose penalties. But they escape civil
or criminal punishments.
Further, most of the Indians or for that matter, Indian firms or companies tend to believe that they are immune to
litigations and, therefore, there is no need for such an insurance cover. At best, they prefer to rely on their legal advisors
or lawyers in case of exigencies. However, the thrust on corporate governance , initiation of legal reforms, increasing

51. awareness of shareholder rights, and India becoming more and more integrate with the global economy will continue to
push 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 overseas
exposure. Either these companies had a strong international presence or they
had a GDR or ADR listing. We did not come across any domestic companies
having taken a D&O cover. If one considers a percentage increase in the
number of companies having taken a D&O cover, it is over 100 per cent to
200 companies.
But, if one juxtapose this to international practices, this is minuscule. For
instance, in the US and other matured markets over 90 per cent of the
companies listed on the bourses have a D&O cover. Compare this to over
6,000-7,000 listed companies on the BSE / NSE; the number 200 looks
microscopic.
In India almost all general insurance companies provide liability insurance
services as they have realized the importance and scope of this product.
Liability insurance constitutes of just about 10% to 11% of their overall
business but the companies are confident that this figure will rise in the
future as people are beginning to realize the importance of liability insurance
in their day to day lives.

52. Liability insurance
other insurance
Survey Report
The following survey was carried out to analyze the views of the common
people about Liability Insurance, to find out their awareness about the
product as well as their recommendations.
Research methodology
Number of people: 50
Area covered: Malad, Kandiwali & Boriwali
Occupation: Mostly businessmen and the rest were professionals
Note: none of these people have taken liability insurance.
1. Are you aware of Liability Insurance?

53. Yes 29%
No 71%
2. looking at our present legal system do you think there is scope for liability
insurance in India?
Yes 30%
No 43%
Can't 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?

54. Yes 21%
No 59%
Can't say 20%
Final Analysis:
It is evident from this survey report that majority of the people are not aware
about Liability insurance and the people who are aware of it are hesitant
when it comes to buying Liability insurance because of the legal system and
various other factors that are present in India which work against Liability
insurance. However they are into agreement that Liability insurance will be
beneficial if taken up. Such mixed reactions only make one suggestion that
the insurance companies market such products more efficiently and simplify
Liability insurance so that it is easier for the layman to understand Liability
insurance.

55. CONCLUSION
Conventionally, Liability insurance concerned itself with the workplace and
issues arising out of working conditions, death or accident at work and
unforeseen incidents while in employment. More recently, however, third
party Liability in damages for suits filed against manufacturers by their
customers, as well as similar liability of professionals towards the users of
their services has become a matter of insurable interest. Consumer courts
are a new reality that insurers are finding opportunities in. the latest
manifestations of this liability issue is shareholder activism that is causing
Directors and Officers of companies to cover themselves against legal suits
in case of negligence of duties.

56. 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

57.  www.liabilitiesinsurance.com
 www.corporateworld.com
 www.iii.com