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Employers Liability

Employers Liability

Intro

Employers Liability Legislation

How Employers Liabiliy Arises

Indemnity and the Insured

Employees, Injury and Insurer on Cover

Territorial Limits, the Insured, and the Business

Exclusions and Extensions

Claims Conditions

INTRO

It is compulsory in the UK for an employer to purchase employers’ liability cover.  

Death and Injury at work 

The reason for this is because there were many work related accidents causing death and serious injuries in work places during the late nineteenth and early twentieth centuries. 

Standards of safety were, at best, primitive and incidents leading to multiple deaths and injuries included: 

  • Mining disasters
  • Chemical explosions in factories
  • Shipping accidents. 

This caused a shift in public opinion.   

Employers’ Liability (Compulsory Insurance) Act 1969 

Society, through Parliament, decided that funds should be available to compensate employees following death, injury or illness contracted at work where the employer is at fault. 

This led to the introduction of the Employers’ Liability (Compulsory Insurance) Act 1969.  From 1 January 1972, all employers had to purchase an approved employers’ liability policy issued by an authorised insurer. 

Insurers are authorised and regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) under the terms of the Financial Services Act 2012.    

Compensation 

Employees have the right to claim compensation from their employer if they are injured or become ill due to the fault of their employer, sometimes through the actions of a fellow employee.  

If an employing contractor fails to provide his scaffolders with adequate safety guidance and one of them falls and is injured, the law will find that the employer has been negligent and the employer will be liable to pay compensation to the employee. 

If a motor trader does not insist that employees wear facemasks in a paint-spraying booth, the employer will be found liable in negligence if an employee becomes ill as a result.  

The Act ensures that there are sufficient funds to meet the costs of any claims for compensation that arise from accidents or illnesses at work

EMPLOYERS’ LIABILITY LEGISLATION

There are two statutes governing employers’ liability insurance in the UK:  

The Employers’ Liability (Compulsory Insurance) Act 1969  

This Act requires all employers carrying on business in the United Kingdom to insure their legal liabilities for causing death, injury or disease to their employees. 

Employees 

There is no definition of an employee in the statute.  Insurers define an employee in their policy wordings as being ‘any individual under a contract of service or apprenticeship with the insured’. 

Insurers list the ‘persons employed’ as being any of: 

  • Employee
  • Labour master and individuals supplied by him
  • Individual employed by labour only sub-contractors
  • Self employed individual (not being in partnership with the insured)
  • Individual hired to or borrowed by the insured
  • Individual undertaking study or work experience while under the supervision of the insured. 

The overriding requirement is that the person must be under the direct control and supervision of the insured. 

For example, a labour only sub-contractor would be an employee, since they would work under instruction from the employer, but a bona fide sub-contractor would work on his/her initiative and would not be viewed as such.

Excluded employers 

The Act applies to all employers, except: 

  • Government departments and agencies, local authorities, police authorities and nationalised industries
  • Health service bodies
  • Some other organisations that are financed by public funds such as passenger transport executives and magistrates court committees
  • Governments of foreign countries who employ people in the UK
  • Family businesses unless they are incorporated as limited companies
  • From 2004, self-employed people who do not employ others. 

Requirements of the Act 

The Act requires employers to display an employers’ liability insurance certificate in every work place.   The underwriter provides the certificate at each renewal.   

The Act, as amended by the Employers’ Liability (Compulsory Insurance) Regulations 1998, now requires that there is a minimum limit of indemnity of £5 million under the policy.  Most underwriters issue policies with a limit of indemnity of £10 million. 

The Act applies in England, Wales, Scotland, Northern Ireland, the Isle of Man and the Channel Islands.  It also applies in the waters surrounding the British Isles. 

Employers’ Liability (Compulsory Insurance) Regulations 1998 

As well as increasing the minimum indemnity limit to £5 million, this legislation also stated the requirement for employers to keep EL certificates for 40 years after the cover expires. From 1 October 2008, this requirement was withdrawn by the Employers’ Liability (Compulsory Insurance) Amendment Regulations 2008 but employers were advised to retain expired certificates.  

The Regulations also increased the original fine to £1,000 for failure to display or supply a copy certificate, or make it available to Health and Safety Executive inspectors.  Failure to have employers’ liability cover in place increased the fine to £2,500 per day. 

The certificate must be displayed in a place where employees have access to it and this can include a soft copy on the employer’s work system or intranet if available. 

HOW EMPLOYERS’ LIABILITY ARISES

Parliament has been concerned to lessen the plight of industrial workers since the early 19th century.  A series of statutes specific to factories and other places of work, such as offices, shops and railway premises, were brought in to control the ways employers operated. 

Health and Safety at Work Act 1974 

Following extensive consultation with industry and trades unions, the Health and Safety at Work Act 1974 introduced a new approach to the subject by placing a responsibility on both employers and employees to produce their own solutions to health and safety problems. 

The Act puts a general obligation on employers to provide and maintain: 

  • A safe place of work with safe access
  • A safe working environment with adequate welfare facilities
  • A safe system of work
  • Safe plant

Necessary information, instruction, training, and supervision. 

This Act provides the framework for improvement of the working environment and is supplemented by subsequent Management of Health and Safety at Work Regulations 1992 to 2005, giving the detail. 

Provided the employee is able to prove that their injury resulted from the breach of statutory duty by an employer, this gives the injured employee an automatic right to legal compensation without having to prove that the employer had been negligent.  

Where an employer can show that they have fulfilled their statutory duties, then they will have no liability.  If they can prove partial fulfilment of their statutory duties then any damages awarded may be reduced proportionately.

INDEMNITY AND THE INSURED

Liability insurances aim to protect the customer from the financial consequences of their potential to cause injury, death, disease or damage.  Many such exposures are unlimited and there is, therefore, a large responsibility on the insurers to clearly express their intention in the policy wording. 

Operative clause 

The most commonly used employers’ liability wording is: 

‘The insurers will indemnify the insured against all sums that the insured becomes legally liable to pay as damages in respect of injury to an employee caused in the course of their employment by the insured in the business within the territorial limits during the period of insurance.’  

This is called the ‘operative clause’ of the policy.  Its parts can be broken down as follows: 

The insurer will indemnify 

The policy seeks to indemnify the insured, putting them in the same financial position after the loss as it was in before the loss happened.  

Note that the policy indemnifies the employer and not the dead, injured, or diseased employee. 

The insured 

The insured will either be a company, an individual or a partnership.  Whilst claims will usually be made against a company, they may sometimes be brought against individual directors, managers, or even employees.   

The policy will cover this eventuality if required, provided that liability would have attached to the company had they been sued.  The policy will also indemnify the personal representatives of these people if they cannot defend themselves due to their injury or death.  

Cover is also provided for any officer or member of any sports, social or welfare organisation the employer may provide or any first aid, fire, medical or other emergency services which they provide.  

Legally liable to pay as damages 

The policy provides cover only where legal liability is established on the part of the employer for causing the injury.  This includes legal disputes that are settled out of court by agreement as well as cases decided in court.   

It does not cover situations where the insured may feel a moral responsibility to an injured or ill employee.  The insurer will pay for claims that involve only a legal liability. 

EMPLOYEES, INJURY AND INSURER ON COVER

Operative clause 

The operative clause states: 

‘The insurers will indemnify the insured against all sums that the insured becomes legally liable to pay as damages in respect of injury to an employee caused in the course of their employment by the insured in the business within the territorial limits during the period of insurance.’  

In respect of injury 

The definition is usually wide enough to cover death, disease, illness, shock and mental injury as well as physical injury.  It does not cover the property of an employee.  

To an employee 

Employees are defined as: 

 

  • Full and part time employees
  • Anyone hired, lent to or borrowed by the employer even if no wage or salary payment is made
  • Apprentices
  • Self employed sub-contractors
  • People on work experience schemes
  • Voluntary workers
  • People attending interviews with a view to being employed. 

 

Caused during the period of insurance 

The period of insurance is 12 months from the start date (inception) or the renewal date of the policy. 

An EL policy covers death, injuries or diseases that are caused during the period of cover. 

Unlike accidents, diseases, which can show up long after the period of insurance, present difficulties.  Examples include noise induced hearing loss, repetitive strain injury and also mesothelioma, a cancer that can be caused by a single fibre of asbestos.   

Diagnosis can be many years after the employee was first exposed to the cause.  If the employer has had several EL insurers over time, this will complicate the issue of which insurer should compensate the employer. 

The trigger date was and is regarded as the date of first exposure to the cause of the disease.  The underwriter providing cover at that date covers the loss. 

On commercial employers’ liability policies all claims that are made on or after 1 April 2011 must be entered on the Employers’ Liability Register and submitted to the Financial Conduct Authority. 

Asbestos exposure 

The size and number of claims relating to asbestos exposure has changed insurance practice.  

In Fairchild v Glenhaven Funeral Services Ltd and Others (2002), the House of Lords decided that where a mesothelioma sufferer, after exposure to asbestos dust at work with more than one employer, is unable to establish when it was caused, because of the limits of medical science, the claimant can establish liability against those defendants and would be entitled to damages from any of them. 

In practice multiple defendants and multiple insurers will co-ordinate and agree how the costs of the claim will be apportioned, either on a time-exposed basis or in equal proportions. 

This is an active area of law and at the time of writing, there are cases due to be heard in the House of Lords, which may overturn the above decision.  It is advised that you keep up-to-date by reading the insurance press. 

There are also moves to create a fund to compensate mesothelioma victims who are unable to trace the identity of the employers’ liability insurer at the time of the accident.  This will be funded by a levy on insurers’ premium income

TERRITORIAL LIMITS, THE INSURED, AND THE BUSINESS

Operative clause 

The operative clause states: 

‘The insurers will indemnify the insured against all sums that the insured becomes legally liable to pay as damages in respect of injury to an employee caused in the course of their employment by the insured in the business within the territorial limits during the period of insurance.’  

Within the territorial limits 

These are usually defined as Great Britain, Northern Ireland, the Channel Islands and the Isle of Man and their surrounding waters. 

Some insurers extend cover to include injuries to persons temporarily working for the insured abroad, generally on a clerical basis only.  

Note that insurers usually exclude offshore working, that is, working on offshore rigs or platforms and travel to and from them. 

Caused in the course of their employment 

Cover only applies to accidents occurring whilst the employee is engaged in their usual work. 

Travel to and from their usual place of work is not included.  However, if the employer asks them to travel to another location in company time, the law would probably treat that as being ‘in the course of employment’. 

By the insured in the business 

Both the words ‘insured’ and ‘business’ will be specifically defined for each insured in their schedule of insurance.  It is crucial that this description covers all companies that may make up a group and all activities that they are involved in. 

Costs included 

As well as cover for damages awarded against the insured, the policy also covers certain other expenses including: 

 

  • Claimant’s costs and expenses awarded against the insured
  • Defence costs incurred with the insurer’s written consent if the prospects of success are reasonable.  This ensures that a realistic defence can be mounted, and may be something that the insured could not afford
  • Solicitors’ fees relating to representation of an employee or director at a coroner’s inquest or fatal accident inquiry.  This ensures appropriate legal representation at such hearings
  • The cost of representing an employee or director at criminal proceedings related to the incident, such as a prosecution by the Health and Safety Executive.  Success in avoiding prosecution helps the defence of a subsequent civil liability case.  Representation also allows for the collection of evidence, which may assist in the defence of any future claim. 

 

EXCLUSIONS AND EXTENSIONS

Exclusions 

Insurers are restricted in the application of exclusions as this is a compulsory class of insurance ensuring that injured workers are compensated when the employer is legally liable. 

Insurers exclude injuries resulting from: 

Radioactive contamination 

Users of such material are under a strict legal liability to prevent radioactive material escaping and are required to participate in their own specific insurance arrangements that meet the costs of any claim. 

Motor accidents to employees who are travelling as passengers  

The Third EC Motor Directive requires that cover for third parties, for example passengers, is provided by motor policies. 

However, injuries to employees who are hurt in an accident when driving on company business would still fall under employers’ liability policies, assuming liability attached to the insured. 

Extensions 

For the same reason that insurers have little ability to avoid payment of claims, there is little scope to extend the cover that is already extensive.  

There are two extra benefits that may be made available, usually free of charge: 

Unsatisfied court judgments 

Cover is provided for a payment to be made to an employee who has won a court action against another party for injuries received during the course of their work, but where they have not been paid the damages within, say, 3 or 6 months.   

The employers’ liability insurers meet the claim and chase the debt from the other party.  

For example, if an employee of a decorating firm breaks his ankle falling into a pothole in a client’s car park, a court judgment is obtained, but the money is not been paid within the specified time period, the employers’ liability insurer will pay and pursue recovery from the client. 

Compensation for court attendance   

This compensates the employer for the loss of the working time of employees or directors required to attend court to help defend a claim. 

Policy Conditions

Compliance with policy terms 

As an insurance policy is a legal contract, so the insured has to comply with its terms.  Failure to do so makes the contract voidable. 

Reasonable precautions 

The insured has a duty to take all reasonable precautions to prevent injury or damage occurring and to keep any loss to a minimum. 

Alteration in risk 

This condition usually requires the insured to notify the insurers if any feature of the risk changes in a way that increases the risk for the insurer.   

Adjustment of premium 

The premium charged is based on an estimate of wages to be paid during the policy year.  At the end of the year the employer will tell the insurer how much was actually paid out in wages and the insurers will calculate the actual premium.                                         

The employer will then pay or be refunded the difference.  It states when declarations are required and enables the insurer to charge an additional premium for failure to make a declaration. 

Cancellation 

This condition outlines the terms under which the insured or the insurers may cancel the policy.  The period of notice can vary from 7 to 30 days.  It is only in serious circumstances that an insurer will choose to cancel prior to renewal. 

If the insured cancels, they will usually receive a refund of most of the unexpired premium, provided that there have been no claims. 

If premiums are paid monthly, cover usually expires when the insured defaults on a payment although insurers will send a notice and cover the insured for a short period before the cancellation takes effect. 

CLAIMS CONDITIONS

Claims Process 

The insured is required to:

Notify claims within a reasonable time

 

  • Not to admit liability for any claim
  • Provide all reasonably requested proof and substantiation
  • Co-operate fully with the insurer’s investigation. 

 

The prompt involvement of insurers is necessary where the threat of litigation is present.  This particularly important to comply with the timescales set out in the Civil Procedure Rules. 

There is an option to refer a case to arbitration if there is a quantum dispute on the size of any settlement.  

Subrogation 

This clause allows insurers to pursue recovery of their claim outlay where the injury has been caused by another who is legally liable for the outcome.  It is important to stress that following the case of Lister v Romford Ice and Cold Storage (1957), insurers will not pursue recovery against an employee where the injury to another employee was due to the first employee’s negligence. 

Contribution 

If more than one policy covers the loss they will usually share the claim settlement.  This ensures that the insured receives an indemnity and no more. 

Fraud 

Insurers withdraw any benefit under the policy if they can prove that the insured has acted fraudulently. 

Right of recovery 

The Employers’ Liability (Compulsory Insurance) Act 1969 prohibits an insurer from using certain conditions to avoid a claim.  These include delay in notification of claim, lack of reasonable care, breach of any laws concerning the protection of employees or failure to keep records as required by the policy. 

The Act states that the insurer must pay compensation to an injured or ill employee if the employer is legally liable.  If, however, the employer is guilty of any of the bad practices in the above paragraph, the right of recovery clause enables the insurers to recover payments made to an employee, from the employer

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Employers Liability

No matter how much effort you put into avoiding workplace accidents, you still need to be covered for when they do occur. Employer’s Liability Insurance protects your business in case of employee accident, and is truly essential cover.

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