Insurance for Liability
Liability insurance indemnifies the insured person against legal liability to third parties. The liability may be for personal injury, death, damage to or loss of property and financial and economic loss. The law of tort / civil wrongs defines circumstances in which a person may become liable to compensate another. Negligence is the most pervasive tort.
It is not usually possible to insure against an intentional or unlawful act of the insured. Insurance primarily covers liability for unintended acts and accidents, where there is a sufficient degree fault, typically negligence, to make the insured liable in the civil courts for his actions or omission.
The wrongful acts of the insured will not usually prevent innocent third parties from obtaining the benefit of the insurance. This is effectively based on public policy, for the benefit of persons who suffer civil wrongs. The liability of the insured at law is based in general legal principles. In legal proceedings, it is not permissible to disclose the availability or non-availability of insurance to the court, or to the jury, if there is a jury.
Liability policies cover liability to pay damages for compensation; together with costs and expenses incurred and reclaimed by the third party claimant. Policies may exclude punitive or exemplary damages. They are rarely awarded. They may be awarded where the defendant/insured has acted in a way which the courts strongly disapproves of, and seeks to punish.
Exemplary damages may be awarded in the case of oppressive or arbitrary behaviour by governmental authorities. They may be awarded where the defendant’s conduct has been calculated to make a profit which may exceed compensation payable. Aggravated damages are compensatory damages, increased due to oppression or the manner in which the wrongful act has been committed. Conduct after the event, such as a refusal to apologise, may be taken into account.
There is no legal requirement for public liability insurance. However, it is very desirable for a business to maintain proper public liability insurance against the risk of liability to pay compensation for injury, damage or loss. This could arise from negligence (or any other civil wrongs) on the part of the business itself, or on the part of its employees.
In practice, it is very difficult to avoid the risk of liability to third parties in course of a business. A very large sum of money could be awarded against the business which could destroy its viability, or in the case of individual’s or partner’s cost make them insolvent. Civil liability is largely unavoidable and it can arise with a minimal degree of fault, by any person within the organised.
Under the principle of vicarious liability, an employer is likely to be liable for its employees, acts and omissions undertaken in the course of their employment, even though they may be highly careless, reckless, or intentional. The courts are cognizant that the insurance policy is in place for the benefit of innocent victims and will usually interpret the policy accordingly.
Public Liability Risks
Public liability policies usually indemnify the insured against sums which a person becomes legally liable to pay, to third parties as a result of accidental bodily injury or illness, accidental loss or damage to property. It covers accidental non-deliberate acts or omissions. Generally, an accident is an unintended, unexpected event. Loss may be accidental even if results from reckless or intentional conduct.
Insurance policies commonly cover liability for negligence. Some policies go further and cover liability for nuisance. Nuisance is the unreasonable interference with another in the enjoyment of his land. In some cases, liability for nuisance will arise irrespective of negligence.
Insurers may cover liability for accidental discharge of pollutants. Nuisance and environmental liability are separate distinct risks. Loss from pollution is limited to unidentified or unexpected pollution. However, liability resulting from the gradual build-up of pollutants will only be covered by an environmental liability policy.
Liability will usually be limited. This is because of the significant potential for open-ended liability for environmental damage. The principle of polluter pays has been extended gradually, over the last 30 years.
Risks Not Usually Covered
Many intentional wrongs are incapable of being insured. Some insurers cover liability for such losses. The extent of cover depends on the policy.
An employer can be liable for assaults and false imprisonment inflicted by an employee. False imprisonment may occur where a person is detained because they were wrongfully believed to have stolen goods. Similarly, liability for assault and battery may occur unwittingly, where an arrest turns out to be unlawful because of mistake or error.
Insurance against liability for infringement of patents and copyrights is not generally available. Similarly, liability for deliberate breach of contract would not be covered.
Liability for negligence causing economic loss would not generally be covered on a public liability policy. This type of liability common arises for negligent advice or defective professional services. Professional negligence policies cover this type of liability and is subject to different rules and considerations.
A public liability policy does not usually cover liability incurred to employees in the course of employment. This is the subject of separate employee liability insurance. It will not cover risks required under motor insurance policies, under the Road Traffic Act.
There are several distinct bases upon which a business may be liable for damages caused by products. Liability may attach to suppliers, retailers, distributors and manufacturers. Retailers are usually liable, regardless of fault for defective goods, under the implied terms in the sale of goods legislation.
A products liability insurance policy provides an indemnity for sums payable as compensation for injury to persons or damage to property caused during the period of the policy by goods sold, supplied, or repaired by the insured. The occurrence must take place during the policy or within a certain period after it so that insurance must be in place when the claim is made.
Where a product proves faulty, the prospective liability can be very significant. There have been a number of cases where medical and other products have been recalled with considerable consequential loss.
The wording of policies varies. Cover may apply to packaging as well as goods. Defects in liability relating to quality or value are not covered. Consequential or indirect loss is not covered. Loss is usually limited to physical damage or injury.
Public liability policies are generally on a worldwide basis. There may be restrictions in relation to the USA. The cover may be limited to premises, goods supplied from a particular business or premises.
The cost of replacing, recall and remedial work may be covered as well as liability for liability incurred.
There will be an indemnity limit, applicable to each period of insurance. This will limit liability and the result of a defective batch. The cost of claims will generally be covered.
Professional indemnity insurance covers liability arising from negligent professional work or advice or from breach of duty in the provision of such services or advice under a contract for professional services. Broadly speaking, where advice is given or services are provided negligently, the person providing the service may be liable for loss or damage incurred by a client or other person to whom they had undertaken a duty of care.
Professional indemnity policies are invariably on a claims made basis. This means that the insurance must be in place when the claim is made or the circumstance giving rise to the prospective claim is reported. There will be financial limits on the extent of the indemnity. Cost may or may not be included in that limit.
Professional Indemnity policies exclude liability for fraud or dishonesty of the insured. Depending on wording, the dishonesty of an employee may be a ground of exclusion. Some policies may cover liability arising from the dishonesty or fraudulent conduct of an employee. Most policies will cover defence costs.
The employees of a professional services firm may be personally liable for advice, in some circumstance. Such employees may need to see secure that they are personally covered by their employer’s insurance and may need to arrange personal cover if not so covered.
Employers owe extensive duties to their employees in relation to their health safely and welfare. See the sections in relation to health, safety and welfare at work and civil liability for workplace injuries. Where a workplace accident injury takes place, there is a high probability that the employer will be legally liable to compensate the employee.
An employer has very broadly based obligations, including obligations to devise, operate, and maintain a safe system of work, provide adequate and safe plant tools and equipment, provide competent and suitable fellow-workers, provide a safe place of work and safe means of access and egress.
In addition, an employer is vicariously liable for the negligence and intentional acts of his other employees. In addition, there are numerous specific duties and obligations in the field of health, safety and welfare at work.
Employers Liability Policies
Unlike the UK, employer’s liability insurance is not mandatory in Ireland. However, employer’s liability insurance is a practical necessity to avoid the risk of significant legal liability.
Employers liability insurance insures the employer against liability for damages and claims in respect to bodily injury or disease incurred by an employee, while employed in or temporally outside the Republic of Ireland during the period of cover and arising in the course of employment.
Employer’s liability insurance may cover liability to employees only. Consideration should be given to whether cover for subcontractors is required. Separate cover may be necessary in respect of liability to such third parties.
The cover is primarily in respect of legal liability to employees. The policies generally provide cover in respect of cost and expenses incurred. They may also provide cover for to employees and directors in respect of prosecutions for breach of health, safety and welfare at work legislation, including legal costs.
Employer liability policies generally provide that the employee himself will be indemnified in respect of a claim by fellow employees and third parties.
Traditionally there is a limit on policies for each occurrence. Commonly this is up to €12,700,000. Premiums may require to be adjusted in line with wages and salaries paid during to employees during the period of insurance.
A workplace disease may manifest itself many years later. Claims may arise long after the initial exposure to workplace diseases. There may be multiple claims based on similar causes and causes.
In recent times, employers had been held liable where employees suffer medically diagnosed stress-related conditions. Stress may manifest itself with symptoms such as depression, fear, physiological effects, behavioural changes, weight loss, low morale absenteeism. Employees have been found liable in some cases where diagnosable psychological conditions have arisen as a result of workplace bullying.
There have been claims in relations to asbestosis, mesothelioma, and passive smoking. New occupational injuries may emerge over time. Difficult issues may arise in relation to occupational injuries. The injury loss or disease must arise out of, or in the course of employment.
Scope of Policy
Travelling to and from work to the regular place of work in an employers provided vehicles, has been held not to be in the course of employment. In other contexts, courts have taken a different view.
Travelling between workplaces is in the “course of employment”. A deviation, other than one which is incidental, may take the employee out of the course of employment.
If there is liability under a motor insurance policy, the employer’s liability policy does generally not apply.
Motor insurance covers usually incidents in the Republic of Ireland. There is usually temporary and conditional cover for journeys in the EU and internationally.
Policies may cover the liability of third-party principals for whom insured contracts to be responsible. This may arise where the employer undertakes a major contract for a third party principal.
Both the employer and contractor, who owns the relevant building or place may be liable to sued in claims by employees. Public authorities and others who enter a building or civil engineering contract will typically require such a clause.
The Civil Liability Act provides that when a person insured under a liability insurance becomes insolvent or bankrupt, the monies payable under the policy are to be paid only in the discharge of claims against the insured, and they are not assets of the insured.
Sums payable to an employee in respect of an accident in the course of employment are preferential debts to the extent not indemnified by insurance.
In a Supreme Court case where a company had got into liquidation, it was held that an owner and shareholder who was very closely involved in relation to the management of the premises where the accident occurred and did not point out obvious dangers, was personally liable to the employee. This was so even though the company (which did not have insurance) was the employer.
Public liability policies usually cover loss arising directly from the personal injury or property damage.
Some Liability Policy Issues
Where a person is indemnified under an insurance policy, the relevant services, in particular, legal services, are deemed to be provided to the insured for VAT purposes. This may allow deduction by them in respect of the VAT element, provided they are recoverable under general VAT principles.
Save where unlimited liability is required by law, insurance policies will usually provide a maximum limit of liability. This does not usually apply to costs. The limit may be referable to an accident or when a series of events referable to a single cause. Alternatively, it may be an aggregate limit applicable in any period of insurance. When the insurer pays the maximum amount, it is not obliged to make any further payments under the policy.
Insurance policies provide two broad types of cover. The policy may provide cover in respect of the occurrence of insured risk during the period of the policy. In contrast, a claims made policy, commonly found in professional negligence policies, provide cover in respect of claims made and circumstances reported to the insurer during the period of cover.
Where liability is insured under a number of policies, they usually provide that the insurer can claim contribution from other insurers, proportionately or rateably.
The insurer will often retain the common law right of subrogation. Subrogation is the right to stand in the employer’s shoes.
The policy may require details of employees to be maintained in a register. If the total wages and salaries exceed the amount declared, the insured is required to pay the difference.
Liability insurance policies usually oblige the insured to take reasonable precautions to prevent the risk, maintain premises, plant equipment et cetera. However, breach of the policy is usually interpreted to apply, only where the insured has been reckless or intentionally.
Policies may oblige the insured to keep records of all relevant information and allow the insurer to inspect them. They may require a statement or declaration so that the premium may be calculated. Most insurance policies contain an arbitration condition in the event of a dispute between the insurer and the insured.
Claims must generally be notified within a particular time. The insurer must be given control of the proceedings. The insured must not take steps to compromise the claim without the consent of the insurer.
The insured is often entitled to defend and settle the claim in its absolute discretion. It is not obliged to act at the insured’s direction. In some polices, there may be provision obliging an insurer to defend where a Senior Counsel gives a positive opinion on the merits.
The insurer may defend a case which it believes defensible. They may accept or waive the right to object to a settlement provided that it is not unreasonable or made in bad faith.