Common Misconceptions of Liability Insurance

Transcription

1 1 Common Misconceptions of Liability Insurance

2 Common Misconceptions of Liability Insurance 2 An outline of today's session:- Most brokers need to be able to explain the products they sell. Liability however is perhaps best described as intangible when compared with most other types of insurance. So today we are going to explore:- The actual risk - Liability Payments What is the Insured really getting. Tangible v Intangible and Short Tail v Long Tail What is the Insured's Product The Paper Trail

3 A Claim Payment Overview 10% 3 Average Li abi l i t y Cl ai mpayment Spl i t 10% to 20% Set t l ement s 20%to 30% Ex- Grat i a / Set t l ement s 50%to 65% Legal Cost s So t he Insured has purchased l egal HELP, not Money

4 Public Liability Coverage 4 Most policies pay for:- Damages Cost of Investigation in to the claim Defence Costs Third Party Property Damage Third Party Bodily Injury Loss of Use of Tangible Property not physically damaged Third Party Property Damage caused by the Insured's Product

5 Tangible v Intangible 5 Most Insured's understanding of Insurance is based around Tangible or Physical Losses. i.e. Motor Vehicle or House and Contents. They often struggle to understand the basic concept of Liability Policy response, and they try to relate liability risk to fire and general risks. They buy an new car they let you know they undertake a new activity they don t tell you, so how would you know? Notification of claims is also an issue. This is probably best demonstrated by an Insured who answered No to the claims question for 2 years in a row and then faced non-disclosure and prejudice issues when the claim (which they claim they did not notify as they were not liable for) cost nearly $950,000 in legal fees to confirm that they were not liable, and took nearly four years to finalise.

6 The Long Tail of Liability Claims 6 As demonstrated on the last slide, liability claims can take several years to either eventuate or be resolved. The oldest claim we are currently managing relates to an activity undertaken in It s still open, incurring legal costs and is yet to be resolved. Your Insured is used to the short period and the assumed defined process claim form assessor/quote payment. This is not how liability claims occur. Things to remember about Long Tail Liability Claims. The Insured is buying (in general order):- 1. Claims Management 2. Legal Defence Costs and Expenses 3. Lastly Payments to Third Parties

7 What is The Insured's Product? 7 We are all aware that a General Public and Products Liability insurance policy does not provide any indemnity for the Insured s Product. It does however, provide coverage for Damage or Personal Injury that the Product may cause. We often see proposal forms or declarations which give answers under the product section questions such as:- None - we only sell other peoples product. Nil - we just install or repair. We only service.

8 What is The Insured's Product? 8 Most policies will generally define product as follows. Any thing:- Sold Supplied Distributed Grown Manufactured Constructed Erected Installed Serviced Repaired Treated

9 What is The Insured's Product? 9 So what does this mean? We know that a General Public and Products Liability insurance policy does not provide any indemnity for the Insured s Product. Accordingly certain professions get very limited indemnity under a General Public and Products Liability insurance policy. Examples:- Builder TV Installer Carpet Layer

10 What is The Insured's Product? 01 These Insured s do obtain some coverage for these activites under a normal Service and Repair or Care Custody and Control extension, however these are normally sub-limited to $250,000. Accordingly, this needs careful consideration when establishing the Limit of Indemnity or increasing the Limit of Indemnity to meet contractual requirements. i.e. A contractual requirement for the Insured to hold $10,000,000 may still leave the main risk exposure with the sub-limit.

11 The Paper Trail 1 Underwriting considerations - When Insurers underwrite a risk they take in to consideration several points. These include the normal things shown on the policy schedule, such as:- Named Insured Business Description Limit of Indemnity Territory and Jurisdiction

12 The Paper Trail 21 Underwriting considerations Insurers also review contractual positions, which can include:- Limitation of Liability provisions Hold Harmless Clauses Is the Insured a Deemed Manufacturer Limit of Indemnity Requirements Open ended or specific period requirements These issues can all effect the premium charged for the Insured.

13 The Paper Trail you must follow 31 Your role as a Broker is to obtain the information to ensure the Insurance policy attends to the Insured s risks. To do this you will need to obtain:- Proposal Forms Product details including Brochures Contracts both with clients and suppliers Standard Terms of Trade You CANNOT rely on old proposals, declarations, policy schedules or websites.

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15 Forest & Rural Fires Act 51 The Forest & Rural Fires Act 1977 and its amendments allows land owners to liable for the cost of Fire Control on or about their property. The Insured may be legally liable even if the fire was not caused by them or even on there property (this is not covered by the policy). Accordingly coverage for the costs if the Insured was responsible for the fire is provided by way of an endorsement to most Public Liability policies and generally sub-limited to $250,000 any one claim and in the annual aggregate. Fire control, in relation to forest, rural, and other areas of vegetation, means: The prevention, detection, control, restriction, suppression, and extinction of fire; and The safeguarding of life and property from damage and risk of damage by or in relation to fire; and All measures conducive to or intended to further or effect such prevention, detection, control, restriction, suppression, extinction, or safeguarding;

16 PL/CGL Explained 61 PROPERTY DAMAGE / PERSONAL INJURY TRIGGER Notification of Claim St art ed in busi ness Only ONE thing MUST occur: A Policy must be in force at TIME of the Property Damage (accordingly that policy must reflect all past contractual requirements and prior business and activities)