Chapter 6 - Liability Insurance

Question 1

Employers’ Liability Insurance

Answer 1

Is the only other liability insurance that is compulsory, the Employers’ Liability Act 1969. This was extended by the Employers’ Liability Regulations 1998 which increased the minimum limit from £2million to £5million.

Question 2

Employers’ Liability Tracing Office (ELTO)

Answer 2

An independent, non-profit company set up by the insurance industry. It was created to provide claimants and their representatives with quick and easy access to a database of Employers’ Liability.
From April 2012 the FCA made it compulsory for ELTO members to provide details of their employers’ liability policies and policy records to allow the tracking of policies by claimants via the Employers’ Liability Database.
Employers must provide their employers’ liability insurers with an Employer Reference Number. Each ERN is unique to the employer. The ERN for a specific point in time is permanent.

Question 3

Employers’ Liability Standard Policy Cover

Answer 3

There is no standard policy wording.
All EL policies provide indemnity to the insured for legal liability for damages in respect of bodily injury or death, disease or illness sustained by any person under a contract of service or apprenticeship with the insured:
• Caused during the period of insurance
• Arising out of and in course of their employment by the insured
• In connection with the trade or business
• Occurring within certain territorial limits

Question 4

Employers’ Liability Legal Liability

Answer 4

EL policies only indemnifies the insured in respect of their Legal Liability to pay damages.

Question 5

Employers’ Liability Damages

Answer 5

They can seek compensation for any:
• Expenses occurred
• Loss of earnings
• Possible future loss of earnings
• Pain and suffering
In law, the employer is liable for the negligence of their employees arising from their employment. This is vicarious liability.
EL policy is only concerned with disease, injury or death.

Question 6

Employers’ Liability Claimants’ Costs Expenses

Answer 6

Claims are settled out of court as far as possible to avoid unnecessary legal costs.
Claimants’ costs and expenses are covered whether or not a claim ends up in court.

Question 7

Employers’ Liability Definition of employee

Answer 7

‘Any person who is under a contract of service or apprenticeship’
Most policies extend to include self-employed persons, hired persons and students on work experience.
Premium is affected by the wageroll.

Question 8

Employers’ Liability Arising Out of and In the Course of Employment

Answer 8

The injury or disease must arise out of and in the course of employment.

Question 9

Employers’ Liability Trade or Business

Answer 9

Injury or disease must arise in connection with the trade or business.
Insurer usually restricts cover to the particular trade or activity for which the insurer has paid the premium.
Usually extends to include ancillary activities.

Question 10

Employers’ Liability Territorial Limits

Answer 10

Bodily injury or disease must be sustained:
• In Great Britain, Northern Ireland, Isle of Man, Channel Islands
• While temporarily outside these territories
Insurers require notification of activities outside territorial limits to asses the risk.

Question 11

Employers’ Liability Period of Insurance

Answer 11

Cover applies to bodily injury and disease caused during the period of insurance.
Doesn’t matter if the policy has expired. For gradually developing diseases the insurers that have covered the risk over the development period will share the cost. This is why requirements for retaining EL certificates were introduced.

Question 12

Employers’ Liability Standard Extensions

Answer 12

• Defence costs and expenses

* Additional persons insured

Question 13

Employers’ Liability Limitations

Answer 13

Very few standard exclusions. There is not even a standard war risks exclusions.
Cover may be limited by applying trade clauses:
• Restricting the definition of business
• Excluding certain kinds of work
• Excluding certain machines and processes
Policy conditions will include a reasonable precautions condition affirming that the employer will comply with statutory regulations and a condition stating how the premium will be adjusted.

Question 14

Public Liability Insurance Standard Policy Cover

Answer 14

It is an open policy in that scope is defined by the exclusion of specific perils instead of cover being specified by the insured perils.
It provides indemnity to the insured for legal liabilities to third parties for damages in respect of bodily injury, death, disease or illness. It also provides any loss of or damage to property.

Question 15

Public Liability Limit of Indemnity

Answer 15

It is the maximum amount insurers are prepared to pay following a claim. This limit is usually £2million but can be as much as £10million.

Question 16

Public Liability Exclusions

Answer 16

• Injury to employees
• Property belonging to the insured
• Product liability
• Contractual liability
• Cost of rectifying defective work
• Deliberate acts
• Motor vehicles
• Vessels and crafts
• Lifts, elevators and boilers
• War risks
• Radioactive contamination

Question 17

Product Liability Insurance Standard Cover

Answer 17

Cover legal liability for bodily injury or property damage which arises out of goods or products manufactured, constructed, repaired, sold or distributed by the insured.
The policy cover consequential losses incurred by a third party only if these flow directly from loss or damage that the insured is legally liable.
Financial loss is not usually covered unless resulting from bodily injury or damage to property.
Basic cover is usually dependant on an element of accident.
Policies are subject to a limit of liability, usually yearly aggregate.

Question 18

Product Liability Exclusions

Answer 18

• Contractual liability
• Damage to goods supplied
• Faulty design or formula
• Unsuitability or failure to perform

Question 19

Directors’ and Officers’ Insurance

Answer 19

At common law a director’s primary duty is to the company and not the shareholders. The Companies Act 2006 specified certain responsibilities of directors:
• Act within powers
• Promote the success of the company
• Exercise independent judgement
• Exercise reasonable care, skill and diligence
• Avoid conflicts of interest
• Not accept benefits from third parties
• Declare an interest in any proposed transaction within a company
Liability may arise under common law from:
• Negligent advice or misstatement
• Acts outside the company’s constitution
• Failure to disclose conflicting interest
• Errors of judgment
• Negligent supervision
• Imprudent investments

Question 20

Directors’ and Officers’ Standard Policy Cover

Answer 20

Two elements of cover are:
• Cover for directors and officers in their personal capacity when they are unable to claim an indemnity from the company
• Cover to protect the company in the circumstances where it is permitted to indemnify the directors or officers
Key benefits provide cover for:
• Allegations of involuntary, constructive or gross negligence, manslaughter, or claims under health and safety legislation
• Breach of trust, breach of duty, breach of warranty, defamation, negligence
• Legal representation costs for individuals at other examinations, enquiries or investigations
Basis of cover is claims made. So the policy covers all claims notified to the insurer, no matter when the event giving rise to the loss occurred. Policy covers past, present and future directors.
Limit of indemnity is an annual aggregate.

Question 21

Directors’ and Officers’ Policy Extensions

Answer 21

Insurers are willing to extend the time limit in which discovery must be made.

Question 22

Directors’ and Officers’ Policy Exclusions

Answer 22

• Circumstances known prior to cover commencing
• Prior and pending litigation
• A jurisdiction clause
• Bodily injury and property damage
• Pollution and contamination
• Claims based upon improper personal gain by a director
• Fraud or dishonesty of a director
• Insured v. Insured
• Breach of professional duty
• Fines, penalties and punitive damages

Question 23

Professional Indemnity Insurance

Answer 23

No standard policy wording.
Protects a professional person against claims which might be made alleging that injury or loss resulted from their actions or advice.
It is compulsory for many professions either under statute or as a regulatory requirement.

Question 24

Professional Indemnity Standard Policy Cover

Answer 24

Covers the liability of members for injury, damage or financial loss to clients or the public as a result of their negligent acts, errors or omissions in their professional capacity.
Law generally does not usually allow claims for financial loss without injury or damage. The exception is where the courts may award damages for pure financial loss.
On a claims occurring basis.
Policy is subject to an excess or a deductible.

Question 25

Professional Indemnity Optional Extensions

Answer 25

• Continuation of cover beyond the date of cancellation in the event of the firm being would up
• Liability for breach of warranty of authority
• Liability for financial loss caused by loss of documents
• Collateral warranties
• Cover for any other person or firm acting jointly with the insured
• Fidelity guarantee

Question 26

Professional Indemnity Exclusions

Answer 26

• Risks that are subject of public liability insurance
• Claims arising outside the UK
• Dishonesty of the insured

Question 27

Pension Fund Trustees

Answer 27

The Pensions Act 1995 impose a wide range of duties upon trustees. Trustees may be held personally liable for their own actions or failures to act, and to civil penalties imposed by The Pensions Regulator.
It is specifically designed to cover internal maladministration of a pension fund resulting in court awards against trustees, losses to the pension fund and defence costs.
On a claims made basis.

Question 28

Pension Fund Trustees Standard Policy Cover

Answer 28

Provides cover for trustees against the risk of personal liability for the commission of a wrongful act.
Cover is also provided for claims made against the employer company in their administration of the scheme.
Theft of fund assets and loss of documents cover is also provided.
Reimbursement cover may be granted for the pension scheme or the employer company.

Question 29

Pension Fund Trustees Exclusions

Answer 29

One of the principal limitations is the definition of wrongful act. Must relate to a breach or alleged breach of trust, neglect, error, or omission and includes libel or slander.
Principal exclusions:
• Bodily injury
• Property damage
• Pollution
• Fraud or wilful act
• Failure on the part of the employer to fund or collect contributions.

Question 30

Charity Trustees

Answer 30

Under the Charities Act 1993 and the Trustee Act 2000 clear responsibilities are given to trustees of charities.
Trustees have the power to insure any property against risks of loss or damage due to any event, and pay out of the trust funds.
Trustees have a responsibility to have an appropriate risk management strategy.

Question 31

Charity Trustees Standard Policy Cover

Answer 31

Provides cover for trustees against risk of personal liability to the charity or third party arising from their breach of trust. Any personal liability for their wrongful acts as a company’s directors or officers is also covered.

Question 32

Charity Trustees Limitations

Answer 32

As a matter of public policy cannot provide indemnity for:
• Fines
• The cost of unsuccessfully defending criminal prosecutions arising from fraud, dishonesty or reckless misconduct of a trustee
• Liabilities to the charity arising from conduct which the trustee knew or did not care whether it was in the best interest of the charity

Question 33

Cyber Insurance Summary of Covers

Answer 33

First party insurance:
•	Loss or damage of digital assets
•	Network downtime/ loss of income/ incident management costs
•	Cyber extortion
•	Reputational damage
•	Theft of money, funds and digital assets
Third party insurance:
•	Loss or breach of digital assets
•	Transmission of malware
•	Regulator action and fines
•	Breach notification
•	Defamation of intellectual property rights

Question 34

Cyber Exclusions

Answer 34

• Employers’ liability. Unless any data privacy obligations have not been met
• Products liability
• Fines and penalties against public interest
• Time excess

Question 35

Cyber Fines and Penalties

Answer 35

No standard wording so there is often confusion about which fines and penalties would be covered.
Current laws regarding data handling require companies to ensure data is protected and data breaches must be reported to the regulator. A companies failure to provide such cover will have consequences, that this insurance will go some way to protect.
Following a claim against an insured, the insurer will pay fines, penalties, liquidated damages and defence costs. Fines and penalties imposed directly by the regulator cannot be insured by law as it is against public policy.

Question 36

Extended Warranties

Answer 36

Personal insurance offered to purchases of consumer durables is known as extended warranty insurances.
Extended warranty refers to the fact that the manufacturer’s own guarantee for an item usually provides cover for repairs or defects for a period of twelve months. Extended warranty is a time extension of this warranty.

Question 37

Extended Warranties Standard Policy Cover

Answer 37

Covers for free repairs following electrical and mechanical defects for a period up to 5 years.
There are policies available that cover all electrical products in the house rather than single items purchased.

Question 38

Extended Warranties Exclusions

Answer 38

• Failure to comply with manufacturer’s instructions or negligence handling
• Risks normally covered by a household contents policy
• Standard market exclusions
• Costs to repair bulbs, aerials, external wires, handles etc.