Almost every liability insurance policy has a coverage trigger which states, “legally obligated to pay”. Insurance do not pay for something unless an insured is found to be legally liable for it. Legal liability is a common jargon used by insurance professionals in their everyday work. But what exactly is legal liability? Legal liability is when any business organisation or its employee becomes legally responsible for a financial loss of another. This liability can arise out of intentional torts, unintentional actions or negligence, or by contract.
Becoming legally liable for the harm caused to another person can be very expensive. The costs can stack up not only due to the amount an insured may be liable to pay to the person, but also from the legal fees to defend any law suit. With this, having a liability policy is very necessary to protect a business organisation and its employees against both intentional and unintentional torts, and provide coverage for legal fees, compensatory damages, and even punitive damages, awarded against them by a law court.
Legal liability is a person’s or entity’s legal responsibility under law. In Ghana, liability policies such as Public Liability, Employers Liability, Professional Indemnity and Motor Third Party Liability are compulsory by law in the Insurance Act 2021 (Act 1016) for public and commercial buildings, business organisations, professional bodies and owners of motor vehicles who drive on any public road. If a person or entity does not uphold this responsibility, they may be sued. Any person or business entity who becomes liable for the injury or property of any member of the public or a customer would be required to pay the complainant for bodily injury, death, property damage or even lost wages.
Although the term ‘duty of care’ can seem a little alien at first, it can roughly be thought of a responsibility of an individual to not harm others through carelessness. Because of its ability to make or break a given case, duty of care is often thought of as a ‘control mechanism’ within the law, essentially, a way for the courts to make a distinction between cases which are legally significant, and therefore worth pursuing, and those cases which do not merit legal attention. Because to err is human, it is very important that individuals, small, medium and multinational companies purchase liability policies to cover their business operations.
There are so many liability policies in various insurance markets, especially in the advanced countries. But I will limit article to the liability policies common in the Ghanaian insurance market.
Product Liability
Despite the hard work that a businesses may put in to ensure they manufacture high-quality goods, there is still the chance that products could fail to work properly. There is always the potential for defects that can result in bodily injury or property damage. A serious risks that a business nor customers can afford. For example, if a business sells products, it has a legal liability to ensure the products are safe for use. The business owner is responsible for any injuries or losses that the product causes, even after it leaves the store. The same way, businesses who perform services to customers are legally liable if their customers suffer injuries or their properties are damage even after the service has been completed. The products liability policy insures the amount of damages the insured becomes legally liable to pay as compensation in respect of any bodily injury, death or illness of any person or damage to property occurring during the period of insurance and caused by the products produced or supplied by the manufacturer, supplier or even the distributor. Product Liability covers a wide geographical location or anywhere the product finds itself. It is important to note that products liability insurance does not extend to cover liability for a product failing to perform as intended or recalling of such products from the market and an exclusion to that effect is included in the policy wording.
Public Liability
Legal liability covers the liability of a company to pay compensation for death or bodily injury to other people or loss or damage to their property resulting from an incident which happens in connection the business operations of a company. For instance, if a person was to come onto the premise or uses the facility of the company and injure him/herself by tripping whilst climbing the stairs, the public liability policy would respond if the insured company, building or the owner is found legally liable for the injury sustained, medical expenses incurred, damages sought, or any legal costs associated with lawsuit. Also, if a building is in flames and the fire escapes to destroy the property of other people or cause any injury to third parties, the policy will pay up to the limit of liability under the policy. Public liability can be purchased as a separate policy or can be included as an extension to any material or property damage policy. Where death or injury is deliberate, the insurer would rely upon a reckless or deliberate acts exclusion to deny liability. In some countries it is against public policy for a liability insurance to pay for the result of a criminal act.
Motor Third Party Liability
In Ghana, it is mandated by law for every vehicle owner to have at least Third-Party Motor Insurance (Motor Third Party Act 1958) policy. Vehicle owners who use the public road are legally liable to any injury or damage to property that their vehicles will cause to any member of the public or other road users through accident. If a policyholder cause an accident on the road, the insurer offers financial assistance to pay for the cost of repairs to the third-party property and the medical expenses if there are bodily injuries. This reduces the financial burden for the policyholder. For example, in the case of a car accident, the insurance would pay to fix the vehicle as well as any physical property damage or bodily injury the accident may have caused to third parties. The legal liability portion of the policy would pay to fix the physical damages caused to other people’s property up to GHC 5,000.00, the medical bills of injured persons involved up the medical receipts provided including any incapacity. Motor accidents resulting in death is based on the provision of CAP-2021.
Employers Liability
Employers’ liability is one of the compulsory insurances that protects businesses against legal and compensation expenses from employee related claims. The health and safety of employees are important and employers are required to uphold that responsibility. It is the responsibility of any employer to provide safe working environment and tools to their employees. Being negligence on that responsibility can result in work related injuries to employees, who can also take a legal action against the employer. If an employee gets injured or dies in the cause of performing their jobs to the employer, the employer could be held legally liable. Therefore, it is very important that employers will have Employers’ Liability insurance policy that will handle or pay for claims from workers who have suffered a job-related injury or illness.
There is a slight difference between Workers’ Compensation Act insurance (WCA) and Employers’ Liability insurance (EL). WCA insurance came about when many governments in the middle to late 19th century passed legislation that required employers to compensate employees for death, injury or disease caused in their employment. Compensation limits were set for death, total or partial disablement and weekly benefits whilst unable to work as the result of the industrial injury. The stated benefits are payable irrespective of fault on either the part of the employer or the employee. It is advisable that as an employee, you will purchase a combined Employers’ Liability and Workmens’ Compensation Act insurance for your employees.
Professional Indemnity
As a professional, you owe a duty of care to your clients. Organisation which provides a professional service or gives advice could be sued if their services are full of errors, omission, negligence or mistakes. The negligence, mistakes, errors or omissions in your services can cause your clients to sustain financial losses. It has frequently been held by the Law Courts that the highest possible standard of care and accuracy is required from a professional who accepts a fee for giving advice on technical matters. The Professional Indemnity Policy (PI) provides cover for the Insured’s legal liability for financial loss incurred by a third party arising out of the advice and consultancy given by the Insured in a professional capacity. This policy covers the cost of compensating clients for loss or damage resulting from negligent services or advice provided by a business or an individual such as solicitors, accountants, architects, lawyers, contractors, surveyors, financial advisers, healthcare professionals, among other professionals. For example, if someone within an organisation fails to apply due diligence, leaves sensitive files on a train or gives damaging advice in an email, it is easy to find his or herself facing legal proceedings. In addition, tricky areas such as defamation and intellectual property are also covered by professional indemnity insurance. If a competitor says another company’s work is too similar to theirs, having the right professional indemnity policy in place can cover the costs of legal defence and any pay outs.
Directors and Officers Liability
Directors and officers have specific duties, responsibilities and powers relating to their positions. These are usually set out in their job description or terms of reference. If a director or officer of a company is found to have acted outside of their terms of reference, civil, criminal or regulatory proceedings can be brought against them. Directors’ and officers’ liability, also known as D&O insurance covers the cost of compensation claims made against a business’s directors and key managers or officers for alleged wrongful acts such as breach of trust, breach of duty, neglect, error, misleading statements, wrongful trading, among others. The D&O liability insurance protects the personal assets of corporate directors and officers, and their spouses, in the event they are personally sued by vendors, competitors, investors, customers, or other parties, for actual or alleged wrongful acts in managing a company. D&O insurance claims are paid to directors and officers of a company or organization for losses or reimbursement of defense costs if legal action is brought against them. Such coverage can also extend to criminal and regulatory investigations or trial defense costs.
References
https://www.hiscox.co.uk/business-insurance/professional-indemnity-insurance/faq/what-is-professional-indemnity-insurance
https://www.landesblosch.com/blog/legal-liability-what-it-means-and-how-it-works/
Gideon is a commercial underwriter who works with Activa International Insurance Ghana..
Email Address: [email protected] Contact: 0246972495
