LIABILITY INSURANCE: WHAT YOU MUST KNOW!

LIABILITY INSURANCE

WHAT YOU MUST KNOW!

What is Liability Insurance?

The law obligates us to exercise a duty of care to our neighbor while carrying out our personal or business activities in the course of our life. A breach of our duties will be considered tortious and will be held liable. Julia Kagan, (2020), defines liability insurance as that insurance product that provides an insured party with protection against claims resulting from injuries and damage to other people or property.

An Overview

This the basis of liability insurance is the law of Tort, A tort is a tortious liability arising from a duty usually fixed by law. The principle of Tortious liability has been well examined in the prominent case of Donoghue v. Stevenson (1932), Malta International Training Center, (2017). The question that may arise is who is my/your neighbor. Concerning the liability insurance, your neighbor is any person you act and or omissions affects directly or indirectly immediately or in the long run. Therefore, we all must take care of our neighbors. Liability insurance though very important in society, not all types are compulsory, examples of compulsory liability insurance policies are, workers’ compensation, professional liability. Some countries are progressively mandating more liability insurance policies compulsory. Notwithstanding as businessmen avoiding financial losses as our primary goal, it is therefore prudent for us to take necessary steps to incorporate the various liability policies that may go a long way protecting us and our organizations against any future financial loss.

What are the Sources of Liability Insurance?

There are three sources of liability insurance Malta International Training Center, (2017):

1) Statute Law; A Statute is an Act of Parliament that establishes duties as a law that must be obeyed. Some statutes require to ensure that is the Employers Liability (Compulsory Insurance) Act 1969 and some impose regulations that are the Health and Safety at Work etc Act (1974).

2) Contract Law; Contract Law arises from the fact that a contract is an agreement that creates responsibilities that are enforceable at law. If one of the parties to the contract fails to fulfill the duties and obligations outlined in the agreement, then they have committed a ‘breach’ of the contract.

3) Common Law; Common Law relates to ancient customs and usage of the land, which have been recognized by the courts and given the force of law. It is an unwritten law and highly complex, being inherited in the form of written judgments from one generation to the next. Although such judgments are recorded, Common Law is still referred to as ‘unwritten law’ because each case establishes a principle to be used as a guide (or precedent) in future cases.

What are the different types of liability insurance?

The different types of Liability Products:

- Employers’ Liability:

Employers' liability insurance protects employers from financial loss if a worker has a job-related injury or illness not covered by workers' compensation, Adam, (2020).

- Public Liability:

It is a type of business insurance that covers the cost of claims made by the public that happen in connection with your business activities, Jean, (2020).

- Product Liability (including Product Guarantee/Recall)

It is that liability insurance that can cover the cost of compensation claims if someone is injured or their property is damaged by a product that you have sold, Simple Business, (n.d.).

- Professional Liability:

This liability policy covers acts of errors and omissions from professionals working in an organization. These can arise as a result of the professional’s negligence, misrepresentation, inaccurate advice.

- Directors and Officers Liability:

Commonly known as D&O, is a type of liability insurance covering directors and officers for claims made against them while serving on a board of directors and/or as an officer.

- Emerging risk:

According to Lloyds 'these risks are not fully understood or allowed for in insurance terms and conditions, pricing, reserving or capital setting'. They include; Nanotechnology, EMF (electromagnetic fields) from mobile phones, Climate change, Human rights, Cyber liability, Pollution/Contamination.

How can Liability Insurance Arise?

According to the Malta International Training Center, (2017), MODULE 4 - Liability Insurance, Course Book, there are seven ways in which liability insurance can arise;

-Firstly, through Trespass; which is an unlawful act committed with force and violence on the person, property, or relative right or another.

-Secondly, Negligence; a liability that arises as a result of the absence of care and can be proven by showing that, there is a dirty of care, which has been a breach, and that breach has caused damage to the defendant.

-Thirdly, Nuisance; a wrong done to a man by unlawfully disturbing him in the enjoyment of his property (a private nuisance) or, in the exercise of a common right (a public nuisance).

-Fourthly, Defamation; a false statement about a person that causes injury to the person’s reputation done either through libel or slander.

-Fifthly, Breach of Statutory Duty; these are duties imposed on us by the law. An example may be the duty of the employer to pay a salary to an employee for work done.

-Sixthly, Liability under Contract; this occurs when one party of a contract breaches performance or contractual terms either expressly or impliedly.

-Lastly, in a situation where a person is liable under tort but the judge can not situate the case in any of the six above situations, it will be unfair for the judge to let go of the tortfeasor and allow the claimant to suffer. In such a situation the judge would act prudently while applying the maxim “ Justice can not suffer a wrong without a remedy” The Rule in Rylands v. Fletcher (1868) will be applied. This rule states that ‘If a person who, for his purpose, brings on to his land and keeps there anything likely to do mischief if it escapes, must keep it at his peril. If he is not cautious and something happens, then he is prima facie answerable for all the damage which is the natural consequence of its escape’, Malta International Training Center, (2017).

The Importance of Liability Insurance

Some of the advantages arising from owning a liability insurance cover as stated in Hoffman Associates, (n.d.)

-Bodily Injury Liability Coverage: Helps protect you in case injuries occur to other people resulting from your business operation

-Property Damage Liability Coverage: Protection in case damage occurs to the property of others

-Personal Injury Liability coverage: Helps protect you from offenses such as false arrest, libel, slander, and wrongful entry

-Advertising Injury Liability Coverage: Helps cover your legal liability for a variety of offenses arising out of the advertising of your business goods and services

-You Could Close More Large Contracts; By having your policy already in force, you’re one step ahead of the competition.

-Protection Against the Unexpected

Conclusion

In a summary, because our acts and omissions can be tortious it is but normal for us to take liability insurance policies to protect us and or our businesses. Knowing the various sources and how liability insurance arises gives us an overview of how not to breach our duty of care. We can as well use the various types of cover to limit the risk of our acts and omissions, as there are enormous advantages to getting a liability cover for ourselves and our business.

Keep an open eye on our next Write-up!

Newton Bezeng

Founder BeNew Insurance

Email: newtonbezeng@outlook.com

Website: https://benew.business.site

Blog: benewinsurance.blogspot.com

Facebook: https://web.facebook.com/Benewinsurance

LinkedIn: https://www.linkedin.com/company/benew-insurance

Twitter: @newtonbezeng

References

-Adam, H. (2020). Employers' Liability Insurance.

https://www.investopedia.com/terms/e/employers-liability-insurance.asp