LIABILITY INSURANCE

For Beginners and

Enthusiasts.

Lesson 2

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LIABILITY INSURANCE
For

 IIRM Students and Learners

 An Introduction.

by K Sankara Narayana 7.11.2023

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 Special Features of Liability Insurance :

1) In all Liability Insurance, Claims are paid to Persons other than
Insured, but on behalf of the Insured. No Claim Payment to Insured
except Legal Expenses incurred.
2) Liability Insurance provides Indemnity to the Insured for Potential
Legal Liability arising from Common Law and/or Statutory Laws.
3) Legal Costs of the Insured, incurred with Written Consent of the
insurer, are also reimbursed under the Policy.

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 Special Features of Liability Insurance :

“ Jurisdiction Clause ” is Important in Liability Insurance Products.

 “Cause of action” may arise anywhere in the World but Insurers

restrict their Liability to Courts within Specific Jurisdictions.


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Law of Torts and its Elements.
 Common Law applied in India is based on English

Common Law which is body of Law consisting of Past

Legal decisions, Customs, Usages and Conventions.

 Public Liability Insurance is concerned with Legal

Liabilities of the Insured arising mainly under Law of torts
which forms part of the Common Law.

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Tort Definition.
Tort means a Civil Wrong arising out of a Breach of some
Duty which leads to a Civil Cause of Action and for which
Damages or Compensation are recoverable.
The Law of Torts imposes a Duty on Each Person to regulate
his actions and behaviour in such a manner so as not to cause
injury to other persons or damage to their property.
Eg. Libel, Slander or Assault.

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
Tort -- Various Forms :

Libel : It is Publication, Writing or broadcast of False statement in

a Permanent form designed to damage the reputation of another persons.

 Slander : It is also Communication of false information similar to

Libel but in a Verbal form. ( Oral Words ).

Assault : It is unlawfully touching or perpetuating Bodily Harm to a

Person by another Person.

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Tort Vs Crime.
 A “ Tort ” is a Breach of Private Rights of Individuals which affect

only the Victims. Eg. Assault, Defamation.

 A “ Crime ” is a Breach of Public Rights which affect the entire
Society. Eg. Murder, Rape or Burglary.
In Tort, action is brought by Victim who is paid Compensation by the
wrong-doer, as determined by Civil Courts( Common Law). Whereas
in Crime, Prosecution is dealt by the State and the wrong-doer is
punished by Fine and /or Imprisonment. IPC deals with Crimes.

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Tort Vs Breach of Contract.
 A “ Contract ” is an Agreement enforceable at law, based upon
the Consent of the Parties to it. Contract requires Privity
( connection or bond between Parties to a particular transaction.)
between the Parties, whereas in Tort no such Privity is needed.
 A “ Tort ” is a Duty that is broken, imposed by the law and is
applicable to all members of the Society, whereas in Contract this
Duty arises out of Agreement between Parties concerned and
applies to definite Persons.

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 Types of Torts.
 Civil Liability can arise under
 Law of Torts.
 Statutes and
 Law of Contracts.
 Liability Insurance is concerned with two Types of Torts.
 Negligence and
 Nuisance.

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 Negligence meaning .
 “ Negligence ” is defined as breach of Duty Caused by the Omission to do
something which a reasonable man, guided upon those considerations which
ordinarily regulate the Conduct of Human affairs, would do or the doing of
something which a Prudent and reasonable man would not do.
 In short “ Negligence ” means Absence of Care.

 A Civil Action for Negligence can be taken, if (A) Existence of duty of Care
towards the Injured Party, (B)Breach of that Duty, (C) Injury or Damage as a
Consequence of that Breach of Duty, (D) Causal Connection between the
Breach of Duty and the Injury or Damage. ( Ingredients).

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Duty of Care :

In Donoghue Vs Stevenson (1932) case, issues such as

 When does the Duty of care arise and

 To whom is the duty of care owed
were considered in the English Case.
The House of Lords decided that a General Duty of care is owed by People
not to injure their Legal neighbours likely to be affected by their acts or
omissions. This is also known as Lord Atkin’s ‘Neighbour Principle.
( Amplify Donoghue case facts briefly.)

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Breach of Duty of Care :
Law Expects a Standard of Care. It is based on a Reasonable man
behaviour. Action for Negligence can proceed only if there is a
Breach of that Duty of Care. Standard of care is a Subjective issue
and will depend on the facts of the Particular case. Courts always
consider Precedents ( Past Legal decisions).
The Degree of Care required from Owners or Occupiers of Real
Estate ( Land, Buildings etc.) such as Trespassers, Licensee,
Invitees, Passer-by and Children.

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Injury or Damage :

Next requisite to civil action against Negligence is that

Victim shall prove that he suffered Injury or Damage as a
Consequence of that breach of Duty of Care. Injury could be
Death or Bodily Injury and associated pain and suffering,
Economic losses such as Loss of actual Earnings or Earning
Capacity. Damage could be Damage to property also.

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 Causal connection between Breach and Injury.


Injury or Damage should be a Consequence of the negligence act. There
has to be Close Causal relationship between the Duty Breach and the
Injury or Damage.

 Onus of Proof of Negligence:


Under Common Law, the Burden of proving Negligence rests with the
Victim. Victim has to establish that Wrong-doer owed him a Duty of care
which was breached and that was the Proximate Cause of the Injury or
Damage.

Res Ipsa Loquitur ( things speak for itself ) is an exception.

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 Employer’s Liability for Negligence of Employee :
 Legal Doctrine “ Respondent Superior ” asserts that An
Employer is Liable for the Negligence of his Employees. For this there
shall be Relationship of Master and Servant and the Negligent act is
committed in the Course of and within the Scope of Employment.
 This is based on the Principle that Employer is financially
Stronger than the Employee and is better able to bear the Damages
( Monetary Compensation). The Employee is, of course, personally
liable for his own Negligence.

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Principal’s Liability for Negligence of Contractors.

 A Principal or an Employer is not Liable for the negligence of an

Independent Contractor and his Employees arising in connection with the
Performance of the Contract Works . But Principal can not shift his duty of
care to Contractor which is attached to him as Principal, as per Common
Law.
 Principal’s Liability for Contractor’s Negligence may arise (A) where
Principal retains some control over the Contractor or provides labour or
Machinery (B) where Contractor’s Work involves Extra Hazardous acts etc.

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
Principal’s Liability for Negligence of Contractors


The Liability may be Joint or Several, depending upon the circumstances. In
practice, the Principal provides, in the Contract, that he should be indemnified
by the Contractor, if the Principal is held liable for Contractor’s negligence.


Independent Contractor stands on a different footing in law compared to a
mere Contractor ( Outsourced Works ).


Eg. Job Work done at Principal’s Work site is different from Component
Suppliers custom built based on Orders..

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
Nuisance :

 “ Nuisance ” means acts or omissions which unlawfully interfere with another

person’s use or Enjoyment of land or some Right in connection with it.

 Nuisance is of either Variety

 Public Nuisance or
 Private Nuisance .

Public Nuisance Causes any Common Injury, Danger or annoyance to the Public or
People in general injuring their Use of any Public Rights.

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Nuisance :

Public Nuisance cannot be a Basis for Civil Cause of action is dealt by

the State a s a Crime.
“ Private Nuisance ” arises out of the use of one’s own Property in
such a manner as to cause Physical injury to the Property of another or
interfere with his Health or Comfort.
Eg. Wrongful Escape of Smoke, Smell , Fumes, Gas, Noise etc.

Private Nuisance leads to a Civil action for Damages, as it is an act

affecting a Particular Individual.

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Difference between Nuisance and Negligence :
In Nuisance, the Duty of Care on the Wrong-doer part is absolute
and Liability arises if Damage is Proved.
 Nuisance related Damage may result in Pollution Liabilities for
Insurance.
In Negligence, Liability arises only if a person fails to exercise that
degree of care which was demanded for a Particular situation.
Tort ( Negligence ) Cases will lead to Public Liability or Professional
Indemnity insurance Claims.

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