Anyone engaged in business, of any size, should be aware of the need for an appropriate liability insurance policy to meet their needs for protection against legal action taken against them.
What is liability insurance?
Liability insurance protects the policyholder in respect of their legal liability for personal injury or property damage. In the case of a business this protection applies in respect of claims made against the policyholder arising in connection with the activities of the business.
What are the different types of liability insurance?
There a numerous products dedicated to the provision of liability insurance, some bearing slightly different names, but for the most part there are four main classes of insurance that represent the majority of the liability insurance market. For the purposes of this we are referring to liability insurance for business and not the personal liabilities that apply to individuals.
Public liability insurance
This protects the policyholder against claims made against them in respect of their legal liability for personal injury and property damage arising in the course of the business more
Product liability insurance
This provides protection for the policyholder against claims made against them in respect of their legal liability for personal injury or property damage arising from the supply of a product. more
Employers liability insurance
Protects the policyholder against claims from employees in respect of the policyholder’s legal liability for death, disease or injury arising in the course of their employment. more
Professional indemnity insurance
Protects the policyholder against claims in respect of their legal liability for loss resulting from a breach of professional duty. more
Who needs liability insurance?
For most businesses public liability and professional indemnity insurance are not a legal requirement, bur most employers have a legal requirement to hold an employers liability insurance policy. Irrespective of the legal requirement to insure, all prudent businesses of any size, whether a sole trader or a large multi-national should have an appropriate level of liability insurance in place and for most this would mean at least public liability insurance.
What are the limits of indemnity under a liability insurance policy?
All liability policies will be subject to a limit of indemnity. This limit is the insurers maximum liability in respect of claims but it is important to note that this limit can be applied in different ways under different polciies.
Limit any one claim or occurrence
In this case, the limit of indemnity represents the insurers maximum liability in respect of any one claim or occurrence under the policy. This is the basis for employers liability policies and most public liability policies.
Any one claim or in the aggregate.
The limit of indemnity applies to any one claim or the total of all claims in any one policy year. This is the basis for most professional indemnity and product liability policies. The difference between the two basis can be significant and should form part of your consideration when deciding upon the limit that is appropriate for your requirements.
Claims Made or Claims Occurring
These are the two basis under which insurers determine which claims they will be responsible for. The difference between the two is highly significant and can create serious issues with cover if not addressed properly.
Claims Occurring Basis
Probably the basis that most people would expect a policy to be based on, a policy on a claims occurring basis responds to claims arising from incidents that occur during the currency of the policy. If the policy is cancelled or lapsed, it will still respond to claims arising from incidents that occurred whilst it was in force. This is the basis for employers liability insurance and most public and product liability insurance.
Claims Made Basis
The policy responds only to claims made whilst the policy is in force. This is the basis for most professional indemnity insurance and a small proportion of public liability policies. This basis can have serious ramifications if the policy is lapsed or cancelled or retroactive cover is not in force for any period prior to the start of the policy.
What is covered by liability insurance policies?
This is a vital question and is at the heart of liability insurance policies. It is actually very simple to answer. It is not appropriate to provide examples of claims as this is almost always misleading as the full circumstances of each and every claim are different, instead it is much easier to simply state what the policy covers. Liability insurance protects you against claims made against you in respect of your legal liability arising out of your business. If you are legally liable then the policy will pay, if you are not, then it will not. The policy will also meet the defence costs associated with the defence of any claim made against you irrespective of your legal liability in the matter.