Liability Insurance – Insurance Law and Practice Important Questions
Question 1.
Write short notes on the following:
(i) Professional liability cover.
Answer:
Professional liability cover
Earlier Key-man insurance policies were common to provide for the contingency of key personnel leaving the organisation and the consequent disruption and loss to the companies work. The latest trend is towards professional liability insurance for the protection of officials continuing with the company against charges of omission and commissions which have caused liability towards the third parties.
A part from common law responsibilities, the duties of directors under the Companies Act relate to prudent management.
Thus, directors and officers may be liable to:
- Employees, e.g. for unfair dismissal.
- Shareholders, e.g. for imprudent expansions or loans or investments.
- Creditors, e.g. for misrepresentation of financial conditions.
- Members of the public, e.g. for financial loss following reliance on incorrect or inadequate or negligent statement of financial conditions.
The professional liability insurance policy is designed to provide protection to directors and officers of a company against their personal liability for financial losses arising out of wrongful acts or omission in their capacity as directors or officers.
Question 2.
What is the rationale behind the provisions of the Public liability Act of 1991?
Answer:
Public Liability Insurance Act, 1991:
Very often we can notify members of the public are affected because of major accidents in establishments. This Act provides for mandatory public liability insurance for installations handling hazardous substances to provide minimum relief to victims of accidents, other than employees. For example, the Bhopal Gas Tragedy, which arose on account of leakage of the methyl isocyanate gas from the Union Carbide plant in Bhopal on 2 & 3 December 1984, resulting into a liability of US $ 470 million for Union Carbide. In a way, this incident led to the enactment of Public Liability Insurance Act in 1991.
Amount of relief:
Compulsory Insurance:
The liability has to be compulsorily insured under a contract of insurance for an amount of the paid-up capital of the undertaking handling any hazardous substance. The maximum aggregate liability of the insurer to pay relief under an award to the several claimants arising out of an accident shall not exceed rupees five crores and in case of more than one accident during the currency of the policy or one year, whichever is less, shall not exceed rupees fifteen crores in the aggregate.
isocyanate gas from the Union Carbide plant in Bhopal on 2 & 3 December 1984, resulting into a liability of US $470 million for Union Carbide. In a way, this incident led to the enactment of Public Liability Insurance Act in 1991.
Amount of relief:
The amount of relief Payable under Section 3 is as per the schedule incorporated in the Act as follows:
| Fatal accident | ₹ 25,000 per person |
| Permanent total disability | ₹ 25,000 per person |
| Permanent partial disability | The amount of relief on the basis of percentage of disablement as certified by an authorised physician. |
| Temporary partial disability: | Fixed monthly relief not exceeding ₹ 1,000 p.m. Upto a maximum of 3 months (provided the victim has been hospitalized for a period exceeding 3 days and is above 16 years of age) |
| Actual medical expenses | Up to a maximum of ₹ 12,500 in each case mentioned above |
| Actual damage property | Up to ₹ 6.000 |
Compulsory Insurance:
The liability has to be compulsorily insured under a contract of insurance for an amount of the paid up capital of the undertaking handling any hazardous substance. The maximum aggregate liability of the insurer to pay relief under an award to the several claimants arising out of an accident shall not exceed rupees five crores and in case of more than one accident during the currency of the policy or one year, whichever is less, shall not exceed rupees fifteen
crores in the aggregate.
Policy Exclusions:
The policy does not cover the following liabilities:
- Arising out of willful or intentional non-compliance of any statutory provisions.
- In respect of fines, penalties, punitive and/or exemplary damages.
- In respect of damage to property owned, leased etc., by the insured or in his custody. This is not deemed to be third party property. The insured can avail of a separate Material Damage Policy. Industrial Risks and Non-Industrial Risks:
Non-Industrial Risks comprise of risks arising out of the following establishments:
- Hotels, Motels, Club Houses, Restaurants etc.
- Cinema Halls, Auditoriums and similar public places.
- Residential premises.
- Office or administrative premises, medical establishments, airport premises etc.
- Schools, Educational Institutions, Libraries.
- Exhibitions, Fairs, stadia.
Coverage:
The coverage under the policy includes the following indemnities:
- Legal liabilities.
- Other than liabilities under the Public Liability Insurance Act or any other statute.
- Compensation including claimant’s costs, fees and expenses.
Products Liability Policy:
The demand for products liability insurance has arisen because of the wide variety of products, e.g. canned foodstuff, aerated waters, medicines, injections etc., manufactured and sold to the public in the modern industrial society which products, if defective, may cause death, bodily injury or illness or even damage to property. Apart from the goods, the containers too can cause injury or damage. These liabilities are covered under a Products Liability Policy.
Question 3.
What do you mean by liability insurance? Explain different types of liability insurance.
Answer:
Liability Insurance:
In our lives, we often encounter situations where someone caused any harm. Whether it is property, material, spiritual, moral, labour, etc. And after that comes up is such a thing as “liability insurance”.
Insurance can be of different types and refers to a variety of life situations. This type of insurance is used to shift the burden of responsibilities on the shoulders of the insurance company and to protect themselves from unnecessary expenses. There are several types of liability insurance, the most basic.
(A) Public Liability Insurance:
Industry and commerce are based on a range of processes and activities that have the potential to affect third parties (members of the public, visitors, trespassers, sub-contractors, etc. who may be physically injured or whose property may be damaged or both). It varies from country to country as to whether either or both employer’s liability insurance and public liability insurance have been made compulsory by law. Regardless of compulsion, however, most organizations include public liability insurance in their insurance portfolio even though the conditions, exclusions, and warranties included within the standard policies can be a burden.
(B) Product Liability Insurance:
Product liability insurance is not a compulsory class of insurance in all countries, but legislation such as the UK Consumer Protection Act 1987 and the EC Directive on Product Liability (25/7/85) require those manufacturing or supplying goods to carry some form of product liability insurance, usually as part of a combined liability policy.
(C) Professional Liability Insurance:
Under this category fall into the insurance cases where a person has suffered damage due to errors in the work on a professional basis – the work of ignorant doctors, lawyers, engineers, etc.
(D) Directors and Officers Liability Insurance (D&O):
The D&O policy provides cover for the personal liability of Directors and Officers arising due to wrongful acts in their managerial capacity. Defence costs are also covered and are payable in advance of final judgement.