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LIABILITY INSURANCE

BY
R.R.JOSHI
HISTORICAL BACKGROUND
 PUBLIC LIABILITY INSURANCE
ORIGINATED IN THE U.K.WHEN THE FIRST
POLICY WAS ISSUED IN 1875TO COVER
T.P. LIABILITY ARISING OUT OF THE USE
OF HORSE DRIVEN CARRIAGES
 EMPLOYER’S LIABILITY INSURANCE WAS
A RESULT OF THE EMPLOYERS’ LIABILITY
ACT,1880 AND W.C.ACT’1897
 PRODUCT LIABILITY AND PRFESSIONAL
INDEMNITY ORIGINATED IN THE EARLY
20th CENTURY
 IN INDIA, W.C.ACT AND M.V.ACT PAVED
THE WAY FOR LIABILITY INSURANCE
BASIC PRINCIPLES
 POLICY WILL INDEMNIFY THE INSURED
TO THE EXTENT OF THE AWARD
AMOUNT PLUS CLAIMENT’S COST PLUS
DEFENCE COSTS SUBJECT TO THE LIMIT
OF LIABILITY UNDER THE POLICY
 LIMITS OF INDEMNITY-
 AOA=ANY ONE ACCIDENT
 AOY=ANY ONE YEAR
 PRINCIPLE OF UGF- A POLICY
CONDITION
 INSURABLE INTEREST / INDEMNITY
LEGAL BACKGROUND
 TORT—MEANS A CIVIL WRONG ARISING
OUT OF A BREACH OF DUTY
 SEQUENCE----INSURED OWES DUTY OF
CARETHERE IS A BREACH OF THIS
DUTY RESULTING IN INJURY TO T/P
AND/OR T/P PROPERTY
DAMAGE=>CLAIM FOR DAMAGES
 PUBLIC LIABILITY IS CONCERNED WITH
TWO MAJOR TORTS—
 NEGLIGENCE=ABSENCE OF CARE
 NUISANCE(PRIVATE)= CONDUCT WHICH
NEGLIGENCE
 DEFINED IN ENGLISH CASE—BLYTH V/S
BIRMINGHAM WATERWORKS COMPANY(1856)
 THE BREACH OF A DUTY CAUSED BY THE
OMISSION TO DO SOMETHINGWHICH A
REASONABLE MAN ,GUIDED BY THOSE
CONSIDERATIONS WHICH ORDINARILY
REGULATE THE CONDUCT OF HUMAN
AFFAIRS,WOULD DO OR DOING
SOMETHING WHICH A PRUDENT AND
REASONABLE MAN WOULD NOT DO
 LORD ATKIN’S NEIGHBOUR PRINCIPLE---A GENERAL
DUTY OF CARE WAS OWED TO ALL LEGAL NEIGHBOURS
i.e. THOSE SO CLOSELY AND DIRECTLY AFFECTED THAT
THEY OUGHT TO BE IN CONTEMPLATION AT THE TIME
THE TORT IS COMMITTED
NEGLIGENCE….contd
 THE DEGREE OF CARE MAY VARY ACCORDING
TO PARTICULAR CIRCUMSTANCES
 PERSONS WHO USE DANGEROUS THINGS e.g.
EXPLOSIVES,FIREWORKS etc.ARE BOUND TO
EXERCISE MORE THAN ORDINARY
CARE/CONTROL OVER SUCH PROPERTY
 DUTY OF CARE TOWARDS CHILDREN IS
REQUIRED TO BE OF A HIGHER DEGREE
 THE PLAINTIFF MUST PROVE THE CAUSAL
CONNECTION BETWEEN THE BREACH OF DUTY
OF CARE AND THE INJURY/DAMAGE SUSTAINED
BY HIM
 TEST OF REASONABLE FORESEEABILITY
NEGLIGENCE…contd
 ONUS OF PROOF—BURDEN OF PROVING
NEGLIGENCE IS ON THE PLAINTIFF UNLESS IT
IS A CASE OF RES IPSA LOQUITOR
 DOCTRINE OF RESPONDENT SUPERIOR-AN
EMPLOYER IS LIABLE FOR THE NEGLIGENCE OF
HIS EMPLOYEE FOR ACTS COMMITED IN THE
COURSE OF AND WITHIN THE SCOPE OF
EMPLOYMENT.THIS IS ALSO KNOWN AS
VICARIOUS LIABILITY
 PRINCIPAL’S LIABILITY FOR NEGLIGENCE
OF CONTRACTOR-MAY ARISE AS UNDER:
 WHERE HE RETAINS SOME CONTROL OVER
THE CONTRACTOR OR PROVIDES LABOUR
AND/OR MACHINERY OR THE WORK INVOLVES
NEGLIGENCE….contd
 FATAL ACCIDENTS ACT,1855—PROVIDES
THAT IF DEATH OF A PERSON IS CAUSED BY
WRONGFUL ACT, NEGLECT OR DEFAULT,AN
ACTION FOR DAMAGES IS MAINTAINABLE BY
THE LEGAL HEIRS OF THE DECEASED AGAINST
THE PARTY CAUSING THE INJURY
 DAMAGES ARE AWARDED IN PROPORTION TO
THE FINANCIAL LOSS TO THE
SURVIVORS/LEGAL HEIRS
 DAMAGES FOR PERSONAL INJURY FALL
INTO TWO CATEGORIES:
 SPECIAL DAMAGES-eg LOSS OF EARNINGS, MEDICAL
EXPENSES ,FUNERAL EXPENSES
 GENERAL DAMAGES---eg PAIN AND SUFFERING,LOSS
IMPORTANT LIABILITY
INSURANCE POLICIES
 PUBLIC LIABILITY—INDUSTRIAL
RISKS
 PRODUCT LIABILITY
 WORKMEN’S COMPENSATION
LIABILITY
 LIFT THIRD PARTY LIABILITY
 DIRECTORS AND OFFICERS
LIABILITY
 PUBLIC LIABILITY—NON
PUBLIC LIABILITY-INDUSTRIAL RISKS
 SCOPE:
 INDUSTRIAL PUBLIC LIABILITY POLICY
APPLIES TO INDUSTRIAL AND
MANUFACTURING RISKS OF ALL TYPES
 POLICY COVERS LIABILITY TO THE PUBLIC
ARISING OUT OF ACCIDENTS DUE TO THE
NEGLIGENCE OF THE INSURED/SERVANTS
 POLICY OPERATES ON CLAIMS MADE
BASIS AND PROVIDES FOR CERTAIN
SPECIALIZED FEATURES LIKE
RETROACTIVE DATE, NOTIFICATION
EXTENSION etc.
 S/I MUST BE EXPRESSED IN RATIOS
PUBLIC LIABILITY-INDUSTRIAL
RISKS..contd
 IMPORTANT FEATURES
 PREMIUM RATE-WILL DEPEND UPON
3. RISK GROUP
4. RATIO OF AOA/AOY LIMITS
5. ANNUAL TURNOVER
 EXTENSIONS
7. MULTIPLE UNITS CAN BE COVERED UNDER SINGLE
INDEM NITY LIMIT
8. ACCIDENTAL POLLUTION LIABILITY
9. COVERAGE OF DISCHARGE OF TREATED EFFLUENTS
THROUGH PIPELINES
10. COVERAGE OF GODOWNS/WAREHOUSES LOCATED
OUTSIDE THE FACTORY PREMISES
11. COVERAGE FOR AOG PERILS
12. TRANSPORTATION COVER
PRODUCT LIABILITY
 SCOPE
 POLICY COVERS LIABILITY ARISING OUT
OF THIRD PARTY ACCIDENTAL
DEATH/BODILY INJURY OR DISEASE OR
PROPERTY DAMAGE DUE TO ANY DEFECT
IN THE PRODUCTS MANUFACTURED AND
COVERED UNDER THE POLICY AFTER
SUCH PRODUCTS HAVE LEFT THE
INSURED’S PREMISES
 BY PAYMENT OF ADDITIONAL PREMIUM,
COVERAGE MAY BE OBTAINED FOR COST
OF
PRODUCT LIABILITY…
contd.
 POLICY IS SUBJECT TO RETROACTIVE
DATE,NOTIFICATION EXTENSION,CLAIMS
SERIES CLAUSE etc.
 SALIENT FEATURES-
3. PREMIUM RATES ARE BASED UPON RISK GROUP
CLASSIFICATION,ANNUAL GROSS
TURNOVER,AOY LIMIT ETC.
4. MIDTERM INCREASE/DECREASE IN THE LIMITS
OF INDEMNITY CAN BE CONSIDERED SUBJECT TO
CORRESPONDING REVISION IN THE
RETROACTIVE DATE.
5. POLICY MAY BE EXTENDED TO COVER VENDOR’S
LIABILITY/SUB-CONTRACTORS
LIABILITY/EXPORTS
WORKMEN’S
COMPENSATION
 SCOPE
 W.C. POLICY INDEMNIFIES THE INSURED
EMPLOYER AGAINST LEGAL LIABILITY TOWARDS
HIS EMPLOYEES FOR DEATH/DISABLEMENT DUE
TO ACCIDENTAL INJURIES ARISING OUT OF AND IN
THE COURSE OF EMPLOYMENT i.e. EMPLOYMENT
RELATED INJURIES.
 POLICY CAN BE EXTENDED BY PAYMENT OF
ADDITIONAL PREMIUM TO COVER LIMITED
MEDICAL EXPENSES, EMPLOMENT RELATED
DISEASES LIKE ASBESTOSIS etc.
 POLICY IS ISSUED ON UNNAMED BASIS AND IT IS
MANDATORY TO COVER ALL EMPLOYEES ON THE
BASIS OF ESTIMATED GROSS WAGES FOR THE
POLICY PERIOD.PREMIUM IS ADJUSTABLE ON
ACTUAL WAGE BASIS AT POLICY EXPIRY.
WORKMEN’S
COMPENSATION..contd.
 PREMIUM RATES ARE RELATED TO THE
NATURE OF THE MAIN ACTIVITY OF THE
INSURED AND THE BUSINESS HAS BEEN
DE-TARIFFED W.E.F.01/01/07
 IT IS PERMISSIBLE TO ISSUE A POLICY FOR
LESS THAN ONE YEAR DEPENDING UPON
THE WORK CONTRACT
 INSURANCE SCHEME PROVIDES FOR TWO
TERMS OF INSURANCE VIZ.-
4. TABLE A POLICY-WHICH PROVIDES INDEMNITY
AGAINST LEGAL LIABILITY FOR EMPLOYMENT
INJURIES TO ALL EMPLOYEES(WHETHER WORKMEN
OR NOT) UNDER W.C.ACT,FATAL ACCIDENTS
WORKMEN’S
COMPENSATION..contd.
1. TABLE B POLICY- WHICH PROVIDES INDEMNITY
AGAINST LEGAL LIABILITY FOR EMPLOYMENT
INJURIES UNDER FATAL ACCIDENTS ACT AND
COMMON LAW TO EMPLOYEES WHO FALL UNDER
NON-WORKMEN CATEGORY.TO OBTAIN
COMPENSATION, NEGLIGENCE ON THE PART OF
THE EMPLOYER MUST BE PROVED.
 LIMITS OF COMPENSATION-
3. DEATH- 50% OF AVERAGE MONTHLY WAGES X
RELEVANT FACTOR
4. PTD-60% OF AVERAGE MONTHLY WAGES X RELEVANT
FACTOR
5. PPD-%age OF PTD AS PER SCHEDULE
6. TEMPORARY DISABLEMENT-COMPENSATION PAYABLE
ON THE BASIS OF HALF-MONTHLY WAGES FOR EACH
LIFT(THIRD PARTY LIABILITY)
INSURANCE
 THIS INSURANCE POLICY IS DESIGNED
FOR OWNERS OF PASSANGER LIFTS
INSTALLED IN BUILDINGS TO TAKE CARE
OF THEIR LIABILITIES ARISING OUT OF
THE USE AND OPERATION OF THE LIFT
 POLICY PROVIDES INDEMNITY AGAINST
LEGAL LIABILITY FOR PAYMENT OF
COMPENSATION TO THIRD PARTIES FOR
DEATH/DISABLEMENT/PROPERTY DAMAGE
IN CONNECTION WITH THE USE OF THE
LIFT
DIRECTOR’S AND OFFICER’S
LIABILITY INSURANCE
 SCOPE:
 DIRECTORS ARE NOW PERCEIVED AS
PROFESSIONAL MANAGERS WHO SHOULD
BE ACCOUNTABLE FOR THEIR ACTIONS.
 A DIRECTOR/OFFICER OWES A DUTY
TOWARDS THE
SHAREHOLDERS/EMPLOYEES/
CREDITORS/CUSTOMERS/COMPETITORS/P
UBLIC/GOVT.AND OTHER REGULATORY
BODIES
 HE IS LIABLE TO FACE CIVIL AND/OR
CRIMINAL SUITS FROM THESE QUARTERS
DIRECTOR’S AND OFFICER’S
LIABILITY INSURANCE….
contd.
 EXAMPLES OF WRONFUL ACTS-
2. FAILURE OF SUPERVISION/MISMANAGEMENT OF
FUNDS
3. ACTUAL OR ALLEGED BREACH OF DUTY/BREACH OF
TRUST
4. MISSTATEMENT IN PROSPECTUS/MISLEADING
STATEMENT FILED WITH STOCK EXCHANGE
5. WRONGFUL DISMISSAL/SEXUAL HARASSMENT OF
EMPLOYEE
 POLICY COVERAGE-

POLICY PROVIDES INDEMNITY IN RESPECT OF
CLAIMS MADE AGAINST THE INSURED DURING THE
POLICY PERIOD ARISING OUT OF THE WRONGFUL
ACT OF DIRECTOR/OFFICER
 POLICY COMPRISES TWO SECTIONS-INDIVIDUAL D&O