Liability insurance

Liability insurance is designed to offer specific protection against third-party insurance claims, i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract. In general, damage caused intentionally as well as contractual liability are not covered under liability insurance policies. When a claim is made, the insurance carrier has the duty (and right) to defend the insured. The legal costs of a defense normally do not affect policy limits unless the policy expressly states otherwise; this default rule is useful because defense costs tend to soar when cases go to trial. In many cases, the defense portion of the policy is actually more valuable than the insurance, as in complicated cases, the cost of defending the case might be more than the amount being claimed, especially in so-called "nuisance" cases where the insured must be defended even though no liability is ever brought to trial. Liability insurance covers business owners, independent professionals and self-employed people against the cost of compensation claims following fault of negligence brought against them by employees, clients, customers, shareholders, investors, or members of the public.
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Public liability insurance or general liability insurance covers a business or organization against claims if its operations injure a member of the public or damage their property in some way. The common policies under Liability Lines are:
  • Directors and officers liability insurance (D&O) - protects an organization from costs associated with litigation resulting from errors made by directors and officers for which they are liable.
  • Professional Indemnity & Errors and Omissions Insurance (PI & E&O) - protects insured professionals such as architectural corporations and medical practitioners against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called medical malpractice insurance
  • Public Liability Insurance - covers the cost of claims made by members of the public for incidents that occur in connection with your business activities. It covers the cost of compensation for personal injuries, loss of or damage to property & death. Policies vary from insurer to insurer, but most public liability policies cover for incidents that occur on insured’s business premises, or that take place off-site, at events or activities organized by insured’s company
  • Cyber Liability - Cyber Insurance is an insurance product used to protect businesses and individual users from Internet-based risks, and more generally from risks relating to information technology infrastructure and activities. Coverage provided by cyber-insurance policies may include first-party coverage against losses such as data destruction, extortion, theft, hacking, and denial of service attacks; liability coverage indemnifying companies for losses to others caused, for example, by errors and omissions, failure to safeguard data, or defamation; and other benefits including regular security-audit, post-incident public relations and investigative expenses, and criminal reward funds.
  • Commercial General Liability - Commercial General Liability is the specific name for a policy of this type in the United States insurance market. It is the "first line" of coverage that a business typically purchases, and covers many of the common risks that can happen to any type of business, such as bodily injury or property damage on the business premises or due to the business operations, personal and advertising injury, and medical payments.
  • Environmental liability – Also called environmental impairment insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
  • Contaminated Product Insurance - Contaminated Products Insurance provides cover for recall costs, loss of gross profits and rehabilitation costs following either accidental or malicious contamination (whether actual or threatened). Adverse publicity and governmental recall are additional triggers which have recently been introduced and will be automatically included, subject to the geography the insurance product is provided for.
  • Workmen Compensation (WC) - employers’ liability required by law if you have employees – covers the cost of compensating employees who are injured at or become ill through work. If you are an employer you are legally obliged to have employers’ liability insurance. Other types of liability insurance are optional.
  • Product Liability - covers the cost of compensating anyone who is injured by a faulty product that your business designs, manufactures or supplies
liaibility insurance
As per the IRDA reports, the Liability GPW for 2017-18 was ₹1,972 crores just a marginal growth over the prior year. Cyber Liability is one of the fastest growing policies within the Liability space.
liaibility graph
A more detailed look at some of the important Liability policies are below:
Being a director or an officer of a company is a high risk profession. Directors and Officers work as the trustee of the company they serve and carry multitude of legal obligations that can result in loss exposures for any corporate wrongdoing. They can be held liable personally and financially for actual or alleged breach of duty in managing the affairs of a company and ensuring its compliance with the numerous laws and regulations that govern its operation.

The most relevant and frequent claims under the D&O policy made in India involve securities fraud, mismanagement of assets and employment practices in response to non-compliance, misrepresentations in public documents, non-conducive employment environment. Claims by employees, as well as other third parties, such as creditors and regulators, are also increasing in today's litigious environment.

Is there a Protection? Yes, the Directors and Officers liability insurance policy, shortly known as D&O Policy, provides indemnity to directors and officers for legal costs, damages and expenses incurred, arising from claims brought against them personally due to any wrongful acts in their managerial capacity. Wrongful acts include:
  • Breach of trust
  • Breach of duty
  • Neglect
  • Error
  • Misleading statements
  • Wrongful trading

Key Exclusions under D&O policy:

  • Any deliberate criminal, dishonest or fraudulent act,
  • Arising out of bodily injury or property damage
  • Any claim arising out of known wrongful acts.
  • Arising out of Contractual Liability based upon or attributable to any delay / failure to perform or complete any Professional Services
The policy provides protection for the company and its subsidiaries for claims brought in respect of negligent acts, errors or omissions in the performance of professional services. The policy is meant to pay for defense expenses and damages and includes amounts that the insured is legally required to pay because of judgments, arbitration awards or the like rendered against the insured, or for settlements negotiated in accordance with the coverage afforded by the policy.

Range of Risks Covered.
  • Errors and omissions indemnity policy covers the company or an individual against litigation filed by a third party for financial loss during the course of providing services.
  • Infringement of intellectual property including copyright, trademark and any trade secret is covered.
  • Claims related to misuse or mis selling of any information that is either confidential or subject to restrictions is also covered.
  • Covers litigation costs arising out of a case filed by the 3rd party. It covers compensation determined, as payable to third parties, by the courts.
  • Cover claims against the estates and legal representatives of the insured.
Additional Benefits
  • Other additional extensions available under indemnity insurance are defamation cover, libel and slander, and cover for employee dishonesty.
  • All claims based on incidences that took place after the retroactive date are covered. This is the date that the first indemnity insurance was bought, provided renewals have been timely.
Which kind of expenses are covered under defense costs?
Errors and omissions policy will pay for the costs, fees and expenses incurred during investigation and trial period. It would include lawyer and legal representative fees and in some case settlement costs. Expenses of your representation at court, inquiry or any other proceeding which have direct relevance with any claim arisen is also covered under liability insurance.

What is not covered under professional indemnity insurance?
Any criminal, intentional, fraudulent, willful and malicious activities are not covered under the professional indemnity insurance. Also, bodily harm to any person and damage to the property is also generally excluded from the policy. Further, punitive fines, penalties or damages are not covered. Lastly, claims occurred prior to policy period are also excluded from the policy.
As many as 25,000 kidnaps are reported each year in over 40 countries, mainly in Latin America, Russia and Asia, with the average ransom payment doubling in the last few years and some payment demands exceeding USD 50 million. Whilst the most vulnerable companies are those that have employees based or travelling overseas; organizations which have high profiles, handle large amounts of cash, or work with sensitive information or technologies can be attached as well. Kidnap and Ransom Extortion Insurance not only protects against financial loss but also provides the services of leading crisis management and security consultants, to manage incident on the policy holder’s behalf.

Need for the KRE Policy - World over, terrorist activities have been increasing substantially over the last few years. Kidnapping for ransom money is also on the upswing. Any company of any size can be a target for extortion threats against the company and its employees. People tend to associate business extortion and kidnapping with global companies.

It Insures:
  • Kidnap/Alleged Kidnap - A seizure or detention or carrying away by force or fraud of an insured person for the purpose of demanding ransom moneys.
  • Extortion - Payment demands following a threat to injure, or kill an insured person; damage property; contaminate products; divulge trade secrets or destroy electronic data by computer virus.
  • Wrongful Detention - Involuntary confinement by a government entity or insurgent organization
  • Hijack - Illegal holding under duress of an insured person while travelling on any aircraft, motor vehicle or waterborne vessel.
What does the cover include? The cover Includes:-
  • Ransom monies
  • Loss-in-transit payment
  • Ransom monies Related expenses: salary, personal financial loss, medical costs, rest and rehabilitation, travel and accommodation, loan interest, reward, interpreter, forensic analysis, other reasonable and necessary expenses, recall expenses, business interruption etc.
  • Consultant costs
  • Judgment, settlements and defense costs
  • Death or Dismemberment arising from a covered incident
The Commercial General Liability policy is the ideal policy for organizations that are proactive in their approach towards Liability issues. This is a complete policy to provide seamless protection to the Insured, and covers Third Party Liabilities arising from various business exposures such as those arising from Premises, Products, Completed Operations, Advertising and Personal Injury and also provides supplemental payments, thus ensuring complete protection to the insured against Liability issues.

Legal liability generally arises from Premises, Products, Operations, Advertising and Personal Injury.

Who requires the protection of CGL Insurance? Whilst CGL like other stand-alone Public and Product Liability policies has universal applicability, the following types of organizations have greatly appreciated the availability of the CGL policy within India.
  • Indian companies that have global operations and thus are exposed to legal claims worldwide.
  • Foreign companies who have opted for the CGL policy in other jurisdictions and would prefer the same for their Indian operations.
  • Companies who are contractually bound to carry Occurrence based liability covers.
Coverages of this Policy
  • Coverage A - Bodily Injury & Property Damage Liability
  • Coverage B - Personal & Advertising Injury Liability
  • Coverage C - Medical Payments
  • Coverage D - Supplementary Payments
Product Liability Policy covers all sums for which the insured might become legally liable to pay as damages in consequence of accidental death/bodily injury or disease to third parties and/or loss of or damage to third party property arising out of any defects in the products manufactured and covered under the policy after such products have left your premises. The insurance company will, subject to the limit of indemnity, pay all costs, fees and expenses incurred with their prior written consent in the investigation, defense or settlement of any claim and your costs of representation at any civil inquest, inquiry, or other proceedings in respect of matters which have a direct relevance to an actual or anticipated claim against your falling within the terms of this insurance policy.
Covered Incident means the recall, removal, recovery of possession or control, or disposal of your product from a distributor, purchaser or user because the consumption of your product has resulted in bodily injury or property damage, or poses actual and imminent danger of resulting in bodily injury or property damage.
Cyber Insurance is an insurance product used to protect businesses and individual users from Internet-based risks, and more generally from risks relating to information technology infrastructure and activities. Risks of this nature are typically excluded from traditional commercial general liability policies or at least are not specifically defined in traditional insurance products. Coverage provided by cyber-insurance policies may include first-party coverage against losses such as data destruction, extortion, theft, hacking, and denial of service attacks; liability coverage indemnifying companies for losses to others caused, for example, by errors and omissions, failure to safeguard data, or defamation; and other benefits including regular security-audit, post-incident public relations and investigative expenses, and criminal reward funds.
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