Liability Insurance

Casualty & Financial Lines

Dipten Roychowdhury
 Overview of Liability Insurance

Liability insurance is any type of insurance policy that protects an individual or

business from the risk that they may be sued and held legally liable for something
such as injury, negligence, malpractice and or wrongful acts. 

It covers UNIDENTIFIED and UNEXPECTED RISKS which can give rise to significant
losses. Blind spot is SURROGATE liability.

.
Legal Cost

Liability
policy covers

Payout/Damage
Liability arises from
 Legal framework
COMMON LAW
Law that is derived from custom and judicial precedent- Codified in India. Indian Penal Code 1860; the Code of
Criminal Procedure 1973 and the Code of Civil Procedure 1908, Indian Contract Act 1872
This quintessentially universal and acted as the derivative of human conduct, used to maintain order where
there was none. It refers to the unwritten, judge made law as opposed to written law (statutory
law)...Accused can maintain silence. Prosecution has to substantiate the claim. Its known as CASE LAW

STATUTORY LAW
Factories Act 1948, WC Act 1923 (Employees Compensation Act 2010), PL Act 1991, Mines Act 1952
Food Safety and Standards Act, 2006  …………
NEGLIGENCE
•A legal duty to exercise "ordinary care and skill".
•The breach of [the] duty caused by the omission to do something which 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.
•Resulting in injury to the plaintiff's person or property.

NUISANCE
A private nuisance is a civil wrong; it is the unreasonable, unwarranted, or unlawful
Public nuisance covers a wide variety of minor crimes that threaten the health, morals, safety,  comfort,
convenience, or welfare of a community. Violators may be punished by a criminal sentence, a fine, or both  
 Liability Jargon demystified
AOA
• Any One Accident
• Any One Event
1:1 1:2
• Any One Year
AOY (in ratio with AOA) • Annual Aggregate 1:3 1:4

Retro
Date

Policy
Period
Period Of
Insurance
Covers bodily injury, property damage (BI/PD) incurred by third parties and originating
from risk sources at the premises of any enterprise. The risk sources may be either
static or dynamic and effect may be within the premises or in its vicinity
Target Market
•Cover is so basic – Everybody needs it !
•Liability arises from Occupiers’ Liability Common Law Principle , so it is myth that Non-Industrial Risks do not
need Public Liability !
•Banks , Hotels , High Rise buildings and their occupants thereof.
•IT Companies - What are their risk exposures ?
•Manufacturing Industries – All of them who have hazardous storages, operations , processes , it is a must !
Important extensions in PL
AOG peril liability (only legal liability)
72 hrs Sudden and Accidental Pollution liability
Discharge of treated effluents thru pipeline

Food & Beverage liability

Liquor Liability (for who serves, sales, distribute liquor)
Personal Property under Care Custody and Control (for Hotels)

Transportation legal liability (for non transporters)

Non Owned and Hired Auto liability
Valet parking (for hotels/restaurants/shops)
 Non Industrial Risks

Industrial Risks
 Public Liability Act
Public Liability Insurance Act 1991: Came into force on 1st April, 1991
“accident” means an accident involving a fortuitous or sudden or unintended occurrence while handling any
hazardous substance resulting in continuous or intermittent or repeated exposure to death of, or injury to, any
person or damage to any property but does not include an accident by reason only of war or radio-activity;
“handling”, in relation to any hazardous substance, means the manufacture, processing, treatment, package,
storage, transportation by vehicle, use, collection, destruction, conversion, offering for sale, transfer or the like of
such hazardous substance [vehicle is any road transport other than Railways]
“hazardous substance” means any substance or preparation which is defined as hazardous substance under the
Environment (Protection) Act, 1986 (29 of 1986), and exceeding such quantity* as may be specified, by
notification, by the Central Government- substance or preparation which, by reason of its chemical or
physico-chemical properties or handling, is liable to cause harm to human beings, other than living creatures,
plants, micro-organism, property or the environment
Public Liability Insurance Rules 1991

“Relief Fund” means the Environmental Relief Fund established under section 7A. Collector has power of a civil court
 Compensation under PL-Act
Sec-3(1) of the Act

Applicatiuon for compensation [u/s 6(1)]: No application for relief shall be entertained unless it is made
within five years of the occurrence of the accident
Award by Collector: The Collector shall arrange to deliver copies of the award to the parties concerned
expeditiously and in any case within a period of fifteen days from the date of the award
Duty of the Owner: claim for relief in respect of death of, or injury to, any person or damage to
any property shall be disposed e within three months of the receipt of the application for relief
Duty of Insurer: the insurer, who is required to pay any amount in terms of such award within a period of
thirty days of the date of announcement of the award, deposit that amount in such manner as the
Collector may direct
Other compensation claimed by the victim/ legal representative - The right to claim relief under sub-section
(1) of section 3 in respect of death of, or injury to, any person or damage to any property shall be in addition to
any other right to claim compensation in respect thereof under any other law for the time being in force. The
amount of such compensation shall be reduced by the amount of relief paid under this Act

Case Study: Containers with Choloromethylpyridine in a plant near Tughlakbad, South

Delhi leaked into the air affected nearly 500 students in two nearby schools who had
to be hospitalized
 LEGAL LIABILITY EXPOSURE IN INDUSTRIAL RISK

Explosion at an ACC cement plant at Sindri

Jharkhand- a cylinder in the fine coal crusher
plant exploded, probably due to extra
pressure generated by the hot air generator
attached to the crusher
 Product Liability
Product - Is Any Tangible Property After It Has Left The Custody Or Control Of The Insured Which
Has Been Designed, Specified, Formulated, Manufactured, Constructed, Installed, Sold, Supplied,
Distributed, Treated, Serviced, Altered Or Repaired By Or On Behalf Of The Insured.

CPA-1986, CP Bill 2015

 Product Liability –example of cascading effect

A ball bearing designed and manufactured as a part by ABC Ltd is used in Washing

machines of manufacturer DEF Ltd. Many consumers of that washing machine were
getting oil stains on clothes after every washing cycle(Third party Property
Damage). On their complain the cause found out to be premature wearing out of
bearing seal, requiring the DEF LTD to inspect and replace the hundreds of bearing
in those Washing machines already sold.
 Lift Liability
Risks associated with modern lifts
a) Traction lifts b)Machine Room Less Lifts
In MRL drive motor can be damaged for bottom drive MRLs if the pit gets flooded and thus lead to
accident
 
Most of the modern lifts uses Variable Voltage Variable Frequency Drives. Now Variable Frequency
Drive panels takes a fixed voltage / frequency and gives out a variable V/f to the motor. In doing so
drive gives off heat. Bigger the drive greater is the heat. If proper cooling mechanism is not
maintained due to poor upkeep the overheat will lead to over-current who go hand in hand. Thus
AC motor eventually trips out leading to accidents. There have been umpteen no of accidents
involving lifts (Otis brand included).
 
c) hydraulic type lifts. The late one uses oil and the drive which includes a pump that is located at
the pit. So presence of oil increases chance of fire
 Products also means
a. Warranties or representations made at any time with respect to the fitness, quality,
durability, performance or use of your product; and
b. The providing of or failure to provide warnings or instructions.
Target Market
•All manufacturing units, and all those in the chain of supply whether in the
wholesale or retail trade. So both B2B and B2C Manufacturers
•Loan License and Contract Manufacturers, On-behalf producers as also
those on the marketing or the branding side, have product liability
exposures.
•Exporters who may be contractually bound to effect Product Liability
Insurance.
•White labelling Companies

Extensions

Vendor liability extension

Product Recall
Product Contamination
Product Guarantee
 Combination of Public and Product Liability

Broad based wording provides comprehensive protection against:

Coverage A : Bodily Injury & Property Damage
Coverage B : Personal & Advertising Injury
Coverage C : Medical Payments
Time tested wording which has stood scrutiny in the most litigious jurisdictions of the world
Completed Operation
 SEC-B in CGL
Personal and Advertising Injury
Personal and advertising injury means arising out of one or more of the following
offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction or wrongful entry
d. Defamation - libel or Slander
e. Oral or written publication that violates person's right of privacy;
f. The use of another's advertising idea in your advertisement;
g. Or Infringing upon another's copyright, trade dress or slogan in your advertisement

SEC-C

Medical expense payment on No-Fault-Liability basis

U/W TO LOOK AT….

1)TURNOVER
Domestic
USA/ Canada
OECD
Non OECD

2) AOA and AOY with any sub limits for Sec-B &C
3) List of Premises
4) Process, RM &FG, Safety, Quality
5) List of products
6) Advertisement responsibility and methods
 Professional Indemnity

Extensions: Loss of Documents, Unintentional breach of confidentiality,

Unauthorized access to data, IPR Infringement, Employee dishonesty
 Cover available
Basic Insuring terms
Legal expenses within Limit Of Liability
Advancement of defence cost
Designated Professional service and technology product
Extended Reporting Period

Extensions
IPR Infringement
Los of documents
Unauthorized access to data
Unintentional breach of confidentiality
Defamation liability
Court attendance cost
Empoloyee dishonesty
Outstanding fees
D&O
 Who is Director and Who is Officer

Directors :
As defined under sections 2(34), Section 149(3), section 161(1) & Section 197(13) of Indian Co’s Act 2013
and also Non-Executive Directors/Independent Directors as per Sec 149(6) of Companies Act 2013

Director
a) Any natural person who is, was or becomes a director or officer of the Company during the Period of
Insurance or holds any equivalent position in any jurisdiction;
b) Any natural person who is, was or becomes an Employee of the Company during the Period of Insurance:
i) acting at the specific prior written request of the Company in the capacity of Outside Director; or
ii) acting in managerial or supervisory capacity; or
iii) named as co-defendant with any director or officer; or
c) any director or officer’s lawful spouse or civil partner
d) the estate, heirs, legal representative
e) Trustee in case of Bankruptcy
Officers
Any employee of the Policyholder in executive /managerial role as Officer who may beappointed or elected
to some position of responsibility or authority in the organization outside the said sections without any
Caveat.
 Is D&O mandatory? What we pay

Sec 197 (13): Companies Act of 2013 recognizes the right of companies to purchase D&O
insurance.
Where any insurance is taken by a company on behalf of its managing director, whole-time director, manager,
Chief Executive Officer, Chief Financial Officer or Company Secretary for indemnifying any of them against any
liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may
be guilty in relation to the company, the premium paid on such insurance shall not be treated as part of the
remuneration payable to any such personnel:
Provided that if such person is proved to be guilty, the premium paid on such insurance shall be treated as part
of the remuneration.
Indemnity is paid
•Only for Civil Procedures grounds
•Legal cost is anyway payble till admission of the Insured or final adjudication

Limit Of Liability
Combined for Side-A&B in the ratio 1:1 throghout the policy period
Trigger –Claims Made
 D&O Insurance
D & O Insurance policies offer liability coverage for company managers to protect them from claims
which may arise from the decisions and actions taken within their scope of regular duties. Policyholder is
Company and its subsidiaries.

Structure of standard D & O Programme

Side A – The Insurer shall pay the loss of each insured resulting from any Claim first made against
the
insured during the policy period for any alleged or actual wrongful act in the Insured’s capacity as a
Director, Officer or employee of the company except for and to the extent that the company has
indemnified the insured; and subsequently notified or reported to the Insurer within the Period of
Insurance or any extended reporting period as the case may be.
Side B – The Insurer shall pay the loss of the company resulting from any Claim first made against
the
insured during the policy period for any alleged or actual wrongful act in the Insured’s capacity as a
Director, Officer or employee of the company but only when and to the extent that the company
has indemnified the insured for the loss, subsequently notified or reported to the Insurer during
the Period of Insurance or any extended reporting period as the case may be.

Legal Representation (not tied to wrongful acts) expenses extension

Entity Employment Practice Liability Insurance extension

Entity Secrity extension (for equity listed entities)

 Basic cover
• Legal Expenses (Defense Cost) are included within the Limit of Liability
• Advancement of defense cost – 100% before final disposition of the claim
[In the event and to the extent that the Company or the Insured is permitted or required to
indemnify the insured but for whatever reason fails to do so]
• Consent to Claim settlement clause (Hammer Clause)
• Bilateral discovery period
• Outside directorship cover
• [in associate, non-profit or any other corporation at the knowledge and request of the first named
Insured–but excluding claim from any shareholder of outside entity holding more than 20% of
issued and outstanding voting share capital ]
• Legal Representation at Investigations and Examinations cost extension
• Assets and liberty costs extension including prosecution cost, bail bond and civil bond and
damage to reputation expenses covers
• Extradition cost extension for legal and media expenses within asset liberty cost
• Joint property liability extension
• Heir, Estate, Legal Representative and Spousal cover extension
• Special Excess Protection for Non-Executive Directors (NED) including Nominee Directors
• Automatic Run-Off cover – for resigned Directors & Officers of Original Insured and that of
liquidated subsidiaries to the extent alleged or actual wrongful acts pertain to their tenure
• Run Off cover for M&A, Amalgamation, Management Buy Out- free for agreed period
 Extensions (Endorsements)
• Automatic cover for newly acquired or created subsidiaries where gross assets size is up to
25% of the Company based on current financials (excluding Financial Institution )
• Discovery Period for retired Directors –Ranging from 7yrs to Life Time Run Off
• Regulatory Crisis Response cost (including witness expenses towards court attendance costs)
• Emergency legal cost (in absence of Insurer’s formal consent)
• Investigation costs (tied to wrongful acts)
• EPLI (Non-Entity) extension including Whistleblower provisions
• Occupational health and Corporate Manslaughter defence costs extension
• Civil fines and Penalties (insurable under law including Civil Compoundable offences)
• Crisis Communication cost extension
• Counseling cost extension
• Tax liability extension (India only cover)- Claims incurred personally by the Insured persons
for the    unpaid taxes of the Organization due to its financial Impairment and not liability that
arises due to a criminal, deliberate or willful breach of any law or regulation personally by the
Insured person.
• Entity EPLI extension
• Entity Security (security including shares, debt securities including Govt and Corporate Bonds,
CDs, collateral securities)
 Exclusions
• Major shareholder exclusion
• Pollution legal liability exclusion with carve back on defense cost
• Third Party BI/PD claim exclusion with carve back for defence
• Kidnap Hijacking Wrongful Detention exclusion with carve back for response cost
• Professional Indemnity exclusion with carve back for failure to supervise
• Bankruptcy/Insolvency of the Insured
• Insured Vs Insured exclusion except for EPLI claims
• Known Prior acts/ pending claims/ litigations/ circumstances leading to a claim are excluded
• Excluding merger acquisition, management buy-out, buy-in liability, hostile takeover liability
• Deliberate, Intentional, Willful, Dishonest, Fraud, Personal Profit, Insider Trading exclusion
• Regulations in respect of pension funds and retirement benefits liability exclusion
• Punitive, Exemplary, multiplied damages absolute
• Infringement of IPR, patent, copyrights, trademarks liability exclusion
• Prospectus - Future offering of securities liability exclusion
• Unfair Trade practices
• Commissions and bribes (as provided under Prevention of Corruption (Amendment) Bill, 2013
or more specifically under Sec-16 & 17 of UNCAC) exclusion
• Parent/ Holding co claim and liability exclusion
 nk Y o u
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