a perspective on the compulsory liability insurance requirements under the insurance ACT 2021 (ACT 1061)
Under the law of torts, everyone owes a duty to his neighbour; that duty is basically an obligation not to cause loss or harm to the next person.
This obligation or duty is civil in nature. Such duty or obligation has been laid down by decided cases mainly starting with the seminal case of Blyth v Birmingham Waterworks Co. (1856);
And is followed by this long chain of other cases that expanded the boundaries of tortious duty or obligation and with significant addition made by the case of Donoghue V. Stevenson (1932).
An act or omission that leads to a loss or damage to the properties of others or injury as the case may be, may also have criminal consequences, especially if the act is proscribed by law.
Any act proscribed by law, invariably has some form of punishments or penalties consequent upon it.
In Ghana, some entities are obliged to incept insurance policies, some of which are:
- Commercial Property Insurance
- Public Liability Insurance
- Marine insurance
- Motor third party
- Professional Indemnity Insurance.
The spillage in the context of provisions of the insurance ACT 2021 (ACT 2021)
Prior to addressing the topic above, it is important to explain who is a Tortfeasor.
In everyday English, a tortfeasor is someone who commits a tort, that is a person or entity that in law is found to be responsible or have committed an offense (civil) that leads to an injury or loss to another person.
Person is used as encompassing human and corporate entities. In the context of the spillage, it is the presumption that the Volta River Authority (VRA) precipitated the flooding through the act of opening its controlled gates on the dams operated by the Authority. The Authority may therefore be described as the tortfeasor.
On the above premises, we can pose the following questions:
- Whether VRA owes a duty of care to those affected by the spillage of water from the Akosombo and Kpong dam?
- Are there statutory provisions to mitigate the effects of the spillage by VRA?
- Are there statutory obligations on commercial property owners to take steps to mitigate losses arising from either their own acts or omissions of others?
As the related consequential issues arising from the spillage are evolving, this brief would be restricted to the questions above.
Does VRA owe a duty to those affected by its acts?
As explained, every person (natural or corporate) owes it a duty to his/her neighbour not to cause harm, injury or loss to that neighbour.
In addition, statute (statutory obligation as distinct from tortious obligation) also create a binding duty on some entities to arrange some compensation to persons affected by their acts and omissions.
The specific law as stated is the Insurance Act 2021 (Act 1061)
Section 214 and 215 of the Insurance Act 2021 (Act 1061) provides as follows: –
Requirement to insure and maintain public liability insurance
- (1) A person of a class, type or description specified in the Second Schedule shall insure and maintain an insurance under any qualifying public liability insurance contract with a licensed insurer.
(2) If a person takes out and maintains two or more public liability insurance contracts, the insurance contracts, taken together, shall meet the requirements with respect to the minimum amount of public liability insurance required by the Regulations.
(3) a person who contravenes subsection (1) commits an offence and is liable on summary conviction to a fine or a term of imprisonment or to both as specified in the first schedule.
The law further defines the types of Insurance that must be put in place as follows:
Scope of cover of public liability insurance
- A public liability insurance contract shall provide indemnity for the insured person against
(a) the liability of the person to another person for bodily injury or property damage that occurs during the policy term that arises out of or in connection with the business, activity or operations of the insured; and
(b) the legal and other costs connected with investigating, defending and settling a claim in relation to a liability specified in paragraph (a).
The provision in Section 214 (2) on applicable limit is yet to materialize as the applicable Regulations, are yet to be passed.
As clearly discernible above, the obligation in the law goes beyond arranging compensation for the injured /affected parties and also it include cost incurred in pursuing the compensation, a very relevant and if I may say reasonable provision.
Penalties on failure to incept a public liability insurance-
Unlike the previous Insurance Act 2006 (Act 724), Act 1061 prescribes strict penalties for those who ignore the provisions of Section 214 and 215 of the Act. This is shown above and is captured under section 214 (3). The penalty is provided in the First Schedule as follows: –
Table of offences and penalties
- A person who commits an offence specified in the second column of the table is liable on summary conviction to
- The fine corresponding to the offence as specified in the fifth and seventh columns of the table;
- The custodial sentence corresponding to the offence as specified in the sixth column of the table; or
- Both the fine and the custodial sentence as indicated in the table
- A person who contravenes a provision as indicated in the second column of the table is liable to pay to the Commission the administrative penalty specified in the third or fourth column of the table.
The specific indications as penalties for violation of section 214 (3) are: –
- A prison term of not less than one year and not more than five years or both
- A fine of not less than two thousand and five hundred penalty units and not more than five thousand penalty units. (using 12 cedis for one penalty units, this works out to GH¢30,000.00).
Implications for VRA
The provisions of Act 1061, does not create any exemptions for any organization or entity and as such, VRA has an obligation in law to compensate those affected by its acts and omissions that led to the flooding; if it is established by evidence that they are culpable or responsible for the large-scale damage and loss occasioned by the spillage.
Again the above conclusion is premised on the assumption that there is no exemptions granted the Authority under their enabling Act or any other law as the case may be.
VRA’S duty to the public
One can therefore summarise that having precipitated the act (spillage), VRA has a civil liability to ensure that its act does not cause any harm, loss or damage to others. They further have a statutory obligation under provisions of the Insurance Act 2021 (Act 1061), to have an insurance arrangement in place to compensate those affected by its act or omission.
Plea or defence of act of God?
Unfortunately, plea of “Act of God” ( a plea for mitigation or denial of responsibility because the act was caused by natural forces) will not inure to the benefit of VRA as the provisions in Act 1061 are crafted to override the plea or defence of Act of God. (a decision on this may have to be decided by the courts)
Note that the law, is not concerned about whether the causative act is intentional or accidental. The basic objective or consideration of the provisions under sections 214 and 215 is to ensure first, that compensation is paid to those affected by the tortious act (buttressed by statute) and further, to address such consequential issues as the sustenance and survival of businesses.
The Authority may therefore be prepared for liability claims arising from its acts and omissions as mitigating factors are limited and defences would be very tall hurdles to surmount.
Again, note, the above opinion has not considered possible exemptions granted under the law that sets up VRA. Considering that Act 1061 is quite new, its provisions may override any prior acts.
Statutory provisions in the insurance act that may mitigate losses to commercial/business entities
Act 1061, again places an obligation to insure on owners of commercial buildings. Again, the requirements are strict and captured under Sections 218 and 219 of the Act.
The provisions essentially demand of commercial property owners to have an insurance arrangement in place to cover defined or specific risk including flooding of their properties. Basically, the requirement is for restitution of mainly material damage/losses to the insured with additional provision for liability to other parties to be affected by the acts of the insured.
The provisions are captured under section 218 and 219 of the Act as follows: –
“Requirement to insure commercial buildings
- (1) A person who constructs or causes to be constructed a commercial building specified in the Second Schedule shall insure and maintain insurance under any qualifying commercial building” insurance contract with a licensed insurer.
(2) the occupier or owner of a commercial building shall insure and maintain an insurance contract under any qualifying commercial building insurance contract with a licensed insurer.
(3) a person who contravenes subsection (1) or (2) commits an offence and is liable on summary conviction to a fine or a term of imprisonment or to both as specified in the First Schedule.
Scope of cover of commercial building insurance contracts
- (1) A commercial building insurance contract shall provide with respect to
(a) a commercial building under construction
(i) an indemnity against liability for loss or damage caused to a person where the claim arises from the negligence of, or a breach of a duty of care by the owner, the building contractor or any employee or agent of the owner, or consultant to, the building contractor in connection with the construction of the building;
(ii) the legal and other costs connected with defending a claim referred to in subparagraph (i); and
- The cost of investigating and settling such a claim; and
(b) any commercial building
(i) an insurance cover against the hazards of collapse, fire, earthquake, storm and flood; and
(ii) an indemnity against the liability of the owner or occupier of the commercial building for loss or damage caused to any person using the premises.
Scope of cover: – The required insurances are stated under 219(1) (a) for buildings under construction and 219 (1) (b) for commercial buildings.
Let us limit ourselves for now to 219 (1) (b). The arranged applicable insurance policy MUST provide for the risk of hazards of collapse, fire, earthquake, storm and flood. Added to the stated risk exposure is a provision for LIABILITY INSURANCE to protect the owner or occupier of the commercial building for loss or damage caused to any person USING THE PREMISES.
Section 219 (2) (1)(b) (ii) clearly buttress the intention of the framers of the law, to protect the public against losses, injury and damage as a result of the use of such commercial properties.
It is clear that Section 219 (1)(b)(ii) emphasizes and underscore the importance of protecting the general public and again override any plea or defence of Act of God.
Commercial properties downstream of Akosombo:
- The commercial entities downstream of Akosombo that arranged adequate insurance under provisions of 218/219, need not initially bother about lodging a liability claim against VRA.
- They may fall on their on Assets policies (Assets All Risk, Fire and Allied Perils insurance) (which normally has a flood rider) for compensation.
- Where however, the limits on their Assets policies fall below losses sustained, they may consider falling on any public liability policy incepted by VRA.
The second group of commercial property owners, without any insurance in place, may fall on any policy instituted by VRA. It may be noted that, failure to have a policy under section 218/219 of the Act, is also a violation that comes with its penalties.
Section 218 (3) quoted above, provides for penalties under the First Schedule. The period of imprisonment and fines are the same as under 214(3).
Insurance implications for individual property owners:
There is no statutory obligation on individual property owners who might have had their properties affected by the floods.
However, nothing stops or prevents anyone from buying insurance to cover the risks indicated under Section 219 of Act 1061.
Any individual who might have lost property or sustained any injury or where there is death, his dependents, may proceed against the tortfeasor.
In all cases, a case must be established and evidence adduced that the tortfeasor caused or precipitated the event that led to the loss/damage.
The above positioning assumes VRA has some insurance arrangements in place. As to whether they meet the requirements of the Act, that cannot be established by this article.
Persons (corporate or natural) should take their own decisions in the context of the provisions of the law.
The implications of the flood disaster cannot be surmised into one article. As indicated, this is an evolving event and it may turn out that there is adequate arrangement to address the evolving consequences.
If it is established this is a national disaster, the responsibility to the citizenry for compensation may fall on the state.
The writer is a Barrister at Law and Chartered Insurer, who is the CEO of Risk Management and Advisory Services Limited, a company involved in insurance risk management, broking and consultancy.
His professional interest covers laws relating to financial services, liability and surety contracts and insurance underwriting among others.
He is a Fellow of the Chartered Insurance Institute of London (FCII), Fellow of the Ghana Insurance Institute (FGII) and Fellow of the West African Insurance Institute (FWAII).
He can be contacted on 0244315834.