Member's Area

Public Liability

Public Liability

Intro

Public Liability

Policy Cover - Part 1

Policy Cover - Part 2

Policy Cover - Part 3

Limits of Indemnity

Limits of Indemnity Part 2

Policy Extensions Part 1

Policy Extensions Part 2

Extensions

Policy Conditions

Cancellation

Claims Condition - Part 1

Claims Condition - Part 2

 

INTRODUCTION 

Employers' liability (EL) insurance protects firms against their legal liability for causing injury, death or disease to their employees arising out of their employment.

Under the terms of the Employers' Liability (Compulsory Insurances) Act 1969, it is a (with a few exceptions for government bodies) statutory requirement that United Kingdom employers purchase this cover.

This ensures that money is always available to compensate an employee who is injured or becomes ill as a result of their employment.

Public liability (PL) insurance, or third party (TP) liability insurance as it is also known, protects firms and organisations against their legal liability for death or injury to third parties or for loss of or damage to third party property.

A third party is simply someone outside the original contract. In this case the policyholder and the insurer are the first and second parties. Third parties would therefore include the policyholder's employees so liability arising out of their injury or illness is specifically excluded under the public liability insurance.

The policyholder's legal liability for damage to employees' property is covered under their public liability insurance and not their employers' liability insurance which covers liability for injury and illness only.

This legal liability to third parties may arise either as a result of the way the business is conducted, including as a result of the actions of their employees whilst carrying on their business, or because of a defect in their premises.

Public liability cover is usually purchased with cover for liability arising from injury or damage caused by products the firm has produced, supplied or sold. These risks and liabilities associated with the manufacture and supply of goods and products can also be insured separately under a products liability policy.

It should be noted however that separate products liability insurance is only required because public liability insurance usually excludes the products liability risk.

The main reason for segregating the products risk from the public liability risk is to enable the products liability indemnity limit to be aggregated; this means that it is applied any one period of insurance rather than any one claim. This protects the insurer against multiple costly claims arising from one error, one defective batch of goods.

There are however certain policies where the products risk is not necessarily excluded and therefore the products risk is insured as a part of the public liability cover.

Some contractors' liability and property owners' liability policies insure the products risk within the public liability cover. This is reasonable because they are not involved in the production of large quantities/batches of goods.

Public liability and employers' liability insurance are the most common commercial liability insurance policies that are purchased. However, businesses and commercial organisations can also obtain a range of specialist liability insurances to cover other business risks that they face.

These include professional indemnity, products guarantee or recall, environmental impairment, and directors and officers. They provide insurance cover for risks that are typically excluded by employers' liability or public liability policies.

Public liability insurance is also provided under household insurance policies although we tend to describe it as property owners and/or personal liability.

PUBLIC LIABILITY

Public liability policies cover legal liability. Legal liabilities are usually incurred following breach of statute or the torts of:

  • negligence
  • nuisance
  • trespass
  • defamation
  • strict liability

A tort is often defined as:

'A civil wrong, which usually gives rise to an action (legal action) by the wronged or affected party for damages (compensation).'

If you require more detail about these you are encouraged to study the Module entitled 'How Liability Arises'.

It is a legal requirement that all employers purchase employers' liability (EL) insurance to ensure that money is available to compensate people injured at work or whilst working for their employer.

With public liability insurance there are only a few areas where specific legislation has been issued to make public liability insurance compulsory.

These include:

  • riding schools which must have public liability insurance under the Riding Establishments Act 1970. Riding school proprietors policies must indemnify not only themselves but their pupils and people hiring their horses against liability for injury arising out of the use of the horses. No specific indemnity limit is specified
  • dangerous animals, which are dealt with under the Dangerous Wild Animals Act 1976, which may apply to zoos and laboratories, and the Dangerous Dogs Act 1991. Again no limit of indemnity is specified
  • nuclear power installations. Operators are required to hold public liability cover which can be purchased through the nuclear pool

Some professions and trades make possession of public liability insurance a requirement of membership of their institution or association.

Organisations therefore mainly buy public liability insurance either:

  • out of choice, because they are concerned about the financial implications of possible claims (a large claim could easily ruin a business financially)
  • as a requirement of a contract they enter into that insurance is arranged. For example, where a property owner engages a contractor to work on their premises, they would ordinarily insist on a specified level of PL insurance being arranged
  • as a legal requirement due to the nature of the business
  • as a requirement of membership or affiliation with a recognised body

Public liability insurance protects firms against their legal liability to pay damages that may result from injury, death or damage to non-employees caused by:

  • the business and the way it is conducted, or
  • the premises in which the business is carried on

As discussed previously, public liability insurance may also cover injury, death or damage arising from the products supplied by the firm but this is usually covered by a separate products liability section.

It will also cover the legal and other costs incurred by the claimant in pursuing a legal action against a firm. In most cases the policyholder's own costs in defending the legal action will also be paid by the liability insurers.

Public liability insurance is different to say, property or motor insurance in that there is no obvious or tangible subject matter that the insured is seeking to protect.

Under a property insurance there is always a physical property at risk. Where legal liabilities are concerned the protection provided by the public liability policy is for a legal concept, not a tangible item. Whilst this can usually be valued liabilities are usually unlimited.

The policy wording should clearly express exactly how insurers will indemnify the policyholder in the event of a liability claim.

POLICY COVER – PART 1

PL policy wordings, unlike EL policies, vary significantly in the market. We will look at one of the more common wordings:

Below is what is commonly known as the 'operative clause' of a public liability policy. Operative clauses explain what the policy will cover subject to the exclusions, conditions and extensions that follow in the policy document.

'The insurers will indemnify any person entitled to indemnity against all sums which they become legally liable to pay as damages and claimants costs and expenses arising out of accidental

  • injury to any person
  • loss or damage to material property
  • obstruction trespass nuisance or interference with any right of way light air or water
  • wrongful arrest detention imprisonment or eviction of any person

occurring in connection with the business during the period of insurance within the territorial limits'.

The Insurers Will Indemnify

Insurers are agreeing to compensate the policyholder.

Any Person Entitles To Indemnity

In most cases the policyholder will be a firm (or other organisation such as a charity) and the policy will indemnify it.

Whilst claims will usually be brought against the organisation, they might on occasion be brought against individual directors, managers or even employees who represent the firm and as such, might be viewed as responsible for the incident giving rise to a claim.

The public liability policy will usually extend to indemnify them, at the request of the policyholder, but only for liability that could attach to the policyholder. Thus, the person (directors, managers or employees) has to have been acting in accordance with the insured's business activities if the public liability policy cover is to extend to them.

The public liability policy will also indemnify in the same way the personal representatives of these people if they are incapable of defending themselves due to injury or death.

The public liability policy will also indemnify any officer or member of any sports, social or welfare organisation the policyholder may have or any first aid, fire, medical or other emergency services they may provide.

The policy will also usually indemnify any director or senior official of the organisation for liability arising out of private work undertaken by an employee of the organisation. Again this indemnity is only provided at the request of the policyholder.

POLICY COVER – PART 2

Against Legal Liability For Damages

Insurers are agreeing to indemnify the policyholder 'against all sums which they become legally liable to pay as damages and claimants costs and expenses'.

Not all damages are intended as compensation. There are also punitive or exemplary damages which are sometimes known as aggravated damages. They are intended to punish the defendant.

They are more common in the USA, Canada, Australia and New Zealand than in the United Kingdom. These punitive damages can be similar to fines although they are paid to the claimant rather than the authorities.

Many policies exclude these punitive damages although some restrict the exclusion to the USA and Canada. In some USA states it is illegal to insure punitive damages in the same way that we do not insure fines.

In addition to providing cover for any damages awarded against the insured, public liability policies also provide cover for certain other expenses:

  • claimant's costs and expenses (legal, medical and other costs), which may be awarded against the insured. This will also cover such amounts agreed in "out of court" settlements
  • defence costs incurred with the insurers' written consent. Even where a claim has been successfully defended insurers may still be responsible for significant defence costs
  • insurers will only pay defence costs if the prospect of success is reasonable; they will not take a case to court merely to protect their policyholder's reputation
  • solicitors' fees relating to representation at a coroner's inquest or fatal accident inquiry. This ensures appropriate legal representation at such hearings
  • the cost of representing the policyholder and/or at their request an employee or director in respect of criminal proceedings under the Health and Safety at Work Act. This excludes proceedings relating to the health and safety of employees as this is covered by the employers' liability policy. If convicted, any subsequent fine is not covered, as this is unlawful.

The wording also confirms that the policy only provides cover where there is a legal liability on the insured for the injury or damage. This includes legal disputes that are settled out of court by agreement, as well as those where a judge actually makes a ruling in court.

The policy will not cover situations where the insured may feel a moral responsibility that goes beyond any pure legal responsibility they may have.

Accident Injury To A Person

Sometimes the word 'bodily' is added before injury but it is generally accepted the definition of injury is usually wide enough to include psychological injury such as stress, shock, and mental anguish.

The important word here is 'accidental', as insurers do not cover injury deliberately caused. Care is needed in understanding that insurers are not excluding deliberate actions that unintentionally cause injury, but those deliberate acts where injury should be expected as a result.

This may seem a fine line, but it is an important one. It is not the intention of a PL policy to provide an indemnity where the injury or damage caused was deliberately intended.

Although the wording refers to 'any person' employees will be specifically excluded in the policy.

POLICY COVER – PART 3

Loss Or Damage To Material Property

Property is usually defined specifically as 'material property' to avoid any confusion with certain intellectual property rights people may have (such as trade marks, copyrights or product patents).

Obstruction Trespass Nuisance

Policies also cover liability arising out of obstruction trespass nuisance or interference with any right of way light air or water as a separate part of the operative clause. As such there is no requirement for there to be injury or damage.

Many of the claims against Total Oil following the explosion at the Buncefield fuel storage depot in December 2005 were actually nuisance claims.

Wrongful Arrest

This operative clause also has a separate part to cover liability arising from the wrongful arrest, detention, imprisonment or eviction of any person. These are torts to the person that do not involve personal injury.

Some policies cover these non-injurious torts by extending the definition of injury rather than including a separate item in the operative clause.

It should be appreciated that defamation (libel and slander) and discrimination can be considered as non-injurious torts but they are not usually covered by public liability policies.

Defamation is sometimes covered by a specific extension to the policy but usually only in respect of liability arising out of the publication of trade journals and newsletters and for a much lower indemnity limit, typically £100,000.

In Connection With The Business

The policyholder and the nature of their business are defined in the policy schedule, which is attached to the main policy documents or wording. Only activities that fall within this description are covered by the policy. Hence, it is important that all business activities to be insured are correctly defined.

Occurring During The Period Of Insurance

The period of insurance will be given in the policy schedule and will usually be for twelve months from the inception date of the policy.

The key word is 'occurring'. A public liability policy covers events of injury or damage that happen/occur during the period of cover.

This is known as an 'occurrence', 'loss occurring' or 'claims occurred' basis. What is important is the date of the actual injury or damage, not the date when the error that causes the injury or damage occurs, or the date the claim is made.

Within The Territorial Limits

Territorial limits are usually defined in the policy as Great Britain, Northern Ireland, the Channel Islands and the Isle of Man. Some policies extend these limits to include any European Union country.

Policies usually include activities carried out elsewhere in the world in respect of non-manual employees whilst temporarily working outside the territorial limits.

The legal situation in North America, both USA and Canada, is particularly difficult for insurers with the possibility of the award of much higher damages and legal costs. USA and Canada may therefore be specifically excluded even for non-manual activities.

Public liability policies can be extended, for an additional premium, to cover risks arising outside the standard territorial limits.

Work offshore will be excluded either as a specific exclusion or amending the territorial limits to exclude offshore.

LIMITS OF INDEMNITY – PART 1

If you read a newspaper regularly, you will be well aware that in cases of serious injury, damages awarded to the injured party can run into many millions of pounds.

The damages are to compensate the injured party for the pain and suffering they endure, ongoing costs of care and medical attention and loss of earnings.

If the event or incident causing the injury also affected other people as well, it is easy to see that insurers could face enormous compensation bills arising from a single error.

It is for this reason that insurers impose a limit, or to be precise a series of limits, of indemnity within a public liability policy. These generally apply as follows:

Public Liability Claims In General

These are typically paid on an 'any one occurrence' basis. If, for example, the limit were £5 million, insurers would pay up to £5 million for all claims arising from one occurrence (for example, all claimants injured in a fire at the insured's premises).

If another incident occurred during the same period of insurance, cover would still be available, again up to a limit of £5 million for the second occurrence, and so on.

Product Liability Claims

Whilst this Module is not intended to cover the products liability risk it is necessary to consider how it can affect the public liability indemnity limit.

If a public liability policy is extended to include products liability, the limit applies to both 'any one claim' and also as an aggregate (total) limit for all products claims in the period of insurance (usually 12 months).

For example, again with a limit of £5 million, if three claims occurred for £1 million, £2 million and £3 million respectively during one period of insurance, the insurers would only pay £5 million in total.

Some third party liability risks are products led. The risk of injury or damage arising from the supply of products is higher than the risk of injuring third parties on the policyholder's premises or through work carried out away from the premises: consider a manufacturer compared with a cinema or a builder.

When considering the products led risk the application of the aggregate indemnity limit is likely to result in the selection of a higher indemnity limit than would be the case if the indemnity limit were on an 'any one claim' basis.

As it is common practice for the public and products liability indemnity limits to be the same the public liability limit may be increased to match the products indemnity limit.

Pollution Claims

These are also generally subject to an annual aggregate limit, which varies between insurers. This pollution limit may well be lower than the limit applying to other types of public liability claim. Pollution cover is limited under a public liability policy, as we shall discuss in a later Topic.

Costs

As we have previously mentioned, policies also provide cover for costs involved in investigating or defending incidents, subject to having the written consent of the insurers, and claimants' costs.

However, there are variations within the market as to whether the defence and claimants' costs are included within the limit of indemnity or not. It is quite common for defence costs to be paid in addition to the limit of indemnity under public liability policies.

This is known as a 'costs in addition' policy, rather than a 'costs inclusive' policy, where the costs are included in the limit.

LIMITS OF INDEMNITY PART 2

It is the insured who selects the actual limit in most cases according to how much cover they may feel they need for their business and whether they are prepared to pay the premium the insurers require.

Most insurers regard £2 million as the absolute minimum they can responsibly offer to customers, but £5 million or more is becoming increasingly common.

With public liability, the main issues in selecting an appropriate limit are:

  • the value of the property belonging to others, or the number of people, located in the vicinity of the insured's work for example, a plumber working on a domestic house will generally need a lower limit of liability than a plumber working on a major shopping centre
  • the number of people who may be injured in an incident at the insured's premises, for example, if a large number of customers visit their premises at any one time (such as a nightclub), a higher limit will be required
  • any requirements imposed by a contract into which the insured is entering

Risk Sharing

For large companies with extensive business operations and associated liability risks the limit required could be beyond the capacity of any one insurer and will need to be shared. Risk sharing of liability risks is done in a different way to property insurance.

Property insurers usually share risks proportionately from the ground up, but liability risks are usually shared by layering, let's say:

  • one insurer taking the first £5 million of liability
  • a second company taking the next £10 million
  • a third company covering a layer of say £25 million over the already covered £15 million

giving protection to £40 million in total.

Each individual layer could be co-insured particularly in the Lloyd's and London subscription market.

The cover by the higher-level insurers is only triggered once the lower policy/policies have been exhausted. In the example above, the second insurer will only become involved once a claim exceeds £5 million. They are therefore said to be providing £10 million cover 'over £5 million' or 'in excess of £5 million'. This arrangement is often referred to as excess of loss reinsurance.

POLICY EXCLUSIONS – PART 1

Like virtually every insurance policy:

  • war risks are excluded because the degree of loss would be too large for a commercial company to carry. The government carries this risk
  • radioactive contamination would be excluded as any user of such material is responsible for any damage caused and has access to specific insurance arrangements
  • terrorism exclusions are common. Cover may be available from specialist underwriters (please refer to the Terrorism Module for more information). With PL, the risk is that a policyholder could be held responsible for allowing their premises or equipment to be used in connection with a terrorist attack, say due to inadequate security arrangements. Alternatively it might simply be the case that the policyholder fails to set up reasonable procedures to cater for the evacuation of the public in the event of a terrorist incident

There may be an excess or deductible. Under public liability, this may be restricted to property damage claims rather than injury. The insurers may settle any claims with the claimant and then seek reimbursement from the policyholder but often require the policyholder to pay them the policy excess at the outset.

There are other more specific exclusions, which will also be found in a public liability policy, including those shown below:

Use Of Vehicles, Aircrafts, Boats Etc

Third Party insurance for 'motor vehicles' used on a 'road' is compulsory and governed by the various Road Traffic Acts.

'Motor vehicles' can include motorised plant, for example, forklift trucks, tractors and lorries carrying cranes.

A road is defined as 'any place to which the public has access' and can therefore include land that would not otherwise be considered a road, such as private land to which the public has legitimate access. This may include fields, storage yards, car parks and work sites.

The public liability policy therefore excludes liability arising from the use of a motor vehicle where the Road Traffic Act applies, as this cover must be arranged under a motor policy.

More specific insurance should also be arranged for boats and aircraft.

Injury To An Employee At Work

This must be covered by an employers' liability policy.

Property In The Custody Or Control Of The Policyholder

As the property is in the custody or control of the policyholder they should effect material damage insurance.

For example, if the insured takes in a customer's property to repair, for instance, a jeweller, they should arrange cover under their jeweller's block policy.

One exception is the position of builders and similar tradesmen where liability for damage to the building they are working in, whilst it may be in their custody or control, is covered by the public liability policy.

Defective Workmanship

Insurers generally regard the cost of rectifying defective workmanship as a trade risk, which the insured should pay for themselves.

However, if the defective work led to an injury or other damage, the public liability policy would provide an indemnity for such losses but not for the cost of rectifying the defective work.

POLICY EXCLUSIONS – Part 2

Gradual Pollution

Pollution is an area that worries insurers greatly because of the potentially widespread nature of any damage and the very large cost that could be involved.

Insurers generally restrict the cover they provide under a public liability policy to 'sudden identifiable unintended and unexpected incidents, which take place in their entirety at a specific time and place'.

For example, if a fire causes a chemical tank to leak and cause damage, this would usually be covered. However, no cover would apply if the tank leaked over a period of time due to corrosion.

Remember, the limit of indemnity for pollution covered by the public liability policy may be lower than the limit of indemnity for other types of public liability claims; it is also usually applied in the aggregate to all incidents during any one period of insurance and on a 'costs inclusive' basis.

Wider cover for gradual pollution is available under a specialist environmental impairment liability policy.

Advice For A Fee

Insurers regard the provision of advice in connection with the usual activities of the policyholder's business as part of the insured risk. For example, a builder may recommend use of a certain type of material when quoting for and carrying out building work.

If, however, the policyholder charges separately for professional advice, for instance, an architect, this is regarded as a professional risk, which public liability insurers exclude. Cover can be arranged under a more specific type of insurance: professional indemnity.

Professional indemnity insurance may be required even where the policyholder does not charge a separate fee as the public liability insurance will not cover pure financial losses but only those consequential to injury or damage.

Contractual Liability

Every time the policyholder enters into a contract, there is a possibility that they may extend the nature of their potential liabilities beyond those that they would otherwise have been responsible for at law.

To avoid picking up these extra liabilities (of which the insurers would not be aware), liability which arises solely due to a contract is excluded. If liability would also arise under other legal headings, such as statute or common law, cover will be provided.

For some specialist public liability covers, provided for say builders or electricians, where the insurers are well aware of the implications of standard industry accepted forms of contract, they do provide contractual liability, having built in an appropriate premium charge in the rating.

Contractual liability is now more widely available for manufacturers and retailers, but it should be appreciated that wherever contractual liability is provided it will, unless insurers have agreed to cover a specific contract wording, be subject to the following:

  • it will only cover losses that fall within the operative clause of the policy, this means that simple non-performance of the contract is not covered
  • the other policy exclusions
  • the limit of indemnity
  • the exclusion of liability for liquidated damages and penalties. Liquidated damages are where the amount of damages payable is specified in the contract
  • a requirement that the conduct and control of any claim is restricted to the insurer

EXTENSIONS

The following extensions are usually offered automatically by insurers as extra benefits, included in the premium or will be added for little or no additional premium if requested by the broker.

Compensation For Court Attendance

In the same way that this is added to an employers' liability policy, it is usually included for public liability.

The idea is simple: insurers pay the policyholder a flat daily rate compensation fee for staff who attend court as witnesses.

Payment is made to the policyholder to compensate for lost productivity or the need to hire temporary staff, rather than to the witness.

Contingent Motor

This provides cover to indemnify the policyholder for their liability if an employee uses a vehicle not belonging to the policyholder on the policyholder's business without appropriate motor insurance.

Some policy wordings do not restrict the use of the vehicle to employees but cover use by anyone other than the policyholder.

This extension does not cover loss of or damage to the motor vehicle itself or any property in or on the vehicle.

The extension specifically excludes any liability if indemnity is available under any other insurance as similar cover is often provided by motor fleet policies.

Overseas Personal Liability

In most cases, this is little more than a token benefit when directors or employees are working overseas, as this cover will usually be provided by travel insurance.

It will indemnify the director, partner or employee (and sometimes spouse/family members), for legal liability incurred in a personal capacity whilst temporarily overseas on business.

For example, they may trip somebody up whist eating in a restaurant in the evening.

Data Protection Act

The purpose of this extension is to provide an indemnity for legal liability to pay compensation, costs and expenses for damage or distress caused as a result of holding or misusing the claimant's personal data.

It does not cover the cost of any criminal fine or the cost of correcting the records for the future.

Again, indemnity will be provided to the insured and, if they request, to individual employees, managers and directors.

Cross Liabilities

This clause recognises the fact that in many cases the insured is not a single entity and comprises several linked or subsidiary companies that all have legal liabilities themselves but also have responsibilities at law to each other.

This clause provides each of them with cover under the policy as if a separate policy had been issued to each of them. For example, one subsidiary would be able to claim as a third party against another subsidiary where legal liability for the damage exists.

POLICY CONDITIONS

We will now consider the main conditions found in a public liability insurance policy.

Policy conditions set out what the policyholder must do or not do in order to be insured by the policy. They form the basis of the insurance policy and thus the agreement between the insurer and the policyholder.

Compliance With Policy Terms

As the insurance policy is a legal contract, the policyholder has to comply with its terms in order to obtain the benefit of their rights under the contract.

However, as we have seen, other persons are entitled to indemnity and the purpose of this clause is to make compliance a condition of their indemnity.

In addition it makes compliance with policy terms and conditions by the policyholder a requirement for the insurers to be liable to indemnify. Conditions therefore become 'conditions precedent to liability'; failure to comply with a condition could result in a claim being declined.

Reasonable Precautions

The policyholder has a duty to take all reasonable precautions to prevent injury or damage occurring and, if it has, to keep the loss to a minimum.

Alteration In Risk

This usually requires the policyholder to notify the insurers if any feature of the risk or business changes in a way that increases the risk for the insurers. If a policyholder fails to do this, the insurer may have the option to void the policy from the date the risk changed.

Adjustment Of Premium

Public liability premiums are often made up of charges for

  • the premises risk
  • the work away risk

Whilst the premises risk is often a flat charge based on the number of premises it can be based on the policyholder's turnover when their income is dependent on attracting visitors to the premises, for example, a sports stadium.

The work away risk is usually based on the work away wages figure or relevant turnover to indicate the level of activity carried on away from the premises.

When the premium is based upon wages or turnover an estimate is obtained at the beginning of the policy year and the premium will be adjustable after the year-end according to what was actually paid or earned.

This clause sets out when declarations are required and may give the insurers the right to charge an additional premium if the policyholder fails to make a declaration.

It is common practice for adjustable premiums to be subject to a minimum and deposit premium which means that whilst an additional premium is charged if the estimate is exceeded no refund is allowed if the estimate is not achieved.

CANCELLATION

This outlines the terms under which the policyholder or the insurers may cancel the policy. Usually, the period of notice required either way is between 7 and 60 days. Notice is generally required in writing.

It is only in serious circumstances that an insurer will choose to cancel the policy before renewal date.

If the policyholder cancels they will usually receive a refund of most of the unexpired premium (pro-rata to the remainder of the 12 month contract of insurance), provided that there have been no claims.

If a minimum/deposit premium applies then the policyholder will not receive any refund of premium.

The clause may also cover situations in which premium payment is monthly. In such circumstances cover usually expires at the instant the policyholder defaults on a payment although insurers normally commit to giving 7 days' written warning.

CLAIMS CONDITIONS – PART 1

Claims Process

This condition usually guides the policyholder through the claims process, including notification of a claim, responsibilities for providing supporting material and documentation and helping the insurers to investigate the circumstances of the loss.

Because there is always the possibility that the claim could end up as a court case, it is particularly important with liability claims that the insurers are involved immediately that the policyholder becomes aware of the claim against them.

It is essential that the policyholder does not do or say anything that could compromise or prejudice the position of the insurers.

It should be remembered that there are a number of pre-action protocols which all parties involved in legal disputes must comply with to ensure prompt and efficient investigation and handling of claims and legal actions.

Insurers’ Rights

These cover the rights which the insurers can assume so that they are able to adequately control and defend any action. These usually include:

Claims Controls

The claims control conditions will allow the insurer to take over and conduct the defence or settlement of any claim in the name of the policyholder.

They will include the subrogation rights that allow the insurers to take over the rights of the policyholder after paying a claim (or after agreeing to pay a claim) and enable them to pursue recovery of their outlay from any other party who could be totally or partially liable for an incident.

The conditions will require the policyholder to give insurers all the information and assistance they need to deal with the claim. The policyholder must not admit liability or make any offer of settlement.

CLAIMS CONDITIONS – PART 2

Other Insurances

It is usual for liability policies to exclude claims which are covered by other insurances.

As this condition is relatively standard in most types of liability insurance it ensures that if there is more than one policy covering a loss, the insurers will share the costs.

Discharge of Liability

This condition allows the insurer to pay the claim in full or, if the claim exceeds the limit, pay the limit of indemnity. When the insurer pays the claim in full they are not liable for any costs or expenses incurred thereafter.

This can be important when we remember that the defence costs are often payable in addition to the indemnity limit. Prompt payment of the limit of indemnity could absolve the insurer of responsibility for considerable additional costs.

Specific Conditions of Liability

In addition to the general conditions we have considered, specific conditions precedent to liability may apply to some public liability policies depending on the nature of the policyholder's business. These generally apply to work being carried out away from the premises and typical warranties include:

heat work - precautions to be taken to prevent fires when heat is being used by the insured (for example, welding)

excavation - the need to obtain information and take precautions to prevent damage to underground services (for instance, pipes and cables) before carrying out excavation/digging work.

If the precautions specified in the relevant condition are not adhered to, the insurers will be within their rights to decline to deal with the claim. It is therefore vital that the detail of the condition and the consequences of non-compliance are adequately explained to the insured.

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Public Liability

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