Public Liability Insurance (Hawksmere Report)

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PUBLIC LIABILITY INSURANCE

Fred Collins

IFC

A Hawksmere Report

PUBLIC LIABILITY INSURANCE

Fred Collins

Published by Hawksmere plc

Other Hawksmere Reports: Legal Liabilities for Insurers

12-18 Grosvenor Gardens London SW1W 0DH. www.hawksmere.co.uk © FW (Fred) Collins 1999

Fred Collins

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The author F W (Fred) Collins left the Motor Union Insurance Co. (now a member of the Guardian Group) to join Midland Assurance in 1962. He held a number of claims posts with Midland and when Eagle Star rationalised its operations in the early ‘70’s, he became Chief Liability Claims Superintendent for the Group. He moved to London as Assistant Claims Manager, later becoming Claims Manager, a position from which he retired in 1989. He became an Associate of the Chartered Insurance Institute in 1952 and obtained the LLB from London University in 1955. During his career, he was Chairman of the Claims Panel of the ABI, Chairman of the Rehabilitation Committee (concerned with funding the unit at Edinburgh University) and Chairman of the MIAFTR Committee (concerned with setting up the Anti Fraud and Anti Theft Register). Since retirement, he has engaged in consultancy work including training. He has participated in many seminars and conferences and contributed papers and articles to a number of publications. He is Editor of Kluwers Handbook of Motor Insurance and a contributor to the Handbook of Insurance. He is a former member of the Council of the Insurance Ombudsman Bureau and of the Legal Aid Board.

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Contents

INTRODUCTION Liability – what is it? .........................................................................1 What are its consequences?..............................................................1 How is it expanding? ........................................................................2 How are its effects mitigated?...........................................................2 Public liability insurance...................................................................2 Public liability – its off-shoots ...........................................................3 Future of liability and its insurance ..................................................3

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LIABILITY – ITS FORMS

Common law liability........................................................................6 Statutory liability...............................................................................6 Contractual liability...........................................................................7 The consequences of liability attaching ...........................................8 How is liability established?..............................................................8 Litigation – its cost............................................................................8 Damages............................................................................................9 The rising cost of liability cases........................................................9 The expansion of liability ...............................................................10 Common law increase in liabilities.................................................10 Statutory liability – increasing role of the state and EU..................10 Contractual liability – the use of indemnity and hold harmless clauses ..............................................................11 Will this expansion continue?.........................................................11

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LIABILITY AND THE LAW – PART ONE

Negligence ......................................................................................14 Nuisance .........................................................................................15 Trespass ..........................................................................................16 Statutory liability.............................................................................16 How it arises ...................................................................................17 Statute and the right of action ........................................................17 Cover available................................................................................17 Parties to an action .........................................................................18 Corporations ...................................................................................19 Diplomats........................................................................................19 Persons of unsound mind ...............................................................20 The Crown......................................................................................20

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LIABILITY AND THE LAW – PART TWO

Employer/employee........................................................................22 Principal and agent .........................................................................23 Independent contractors ................................................................23 Defenses to an action......................................................................24 Denial.........................................................................................24 Inevitable accident.....................................................................24 Necessity....................................................................................24 Volenti non fit injuria .................................................................24 Act of God..................................................................................25 Statutory authority .....................................................................25 Unforeseeability .........................................................................25 State of the art............................................................................26 Contributory negligence............................................................26 Limitation...................................................................................26

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Changes in procedure.....................................................................27 Striking out .....................................................................................27

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PUBLIC LIABILITY COVER

Of the utmost good faith ................................................................30 Policy wordings ..............................................................................31 Accidental .......................................................................................31 Alternative words............................................................................32 Personal injury ................................................................................32 Physical and mental injury..............................................................32 Stress – post traumatic stress disorder............................................33 Sickness, illness or disease..............................................................33 Sharing arrangements .....................................................................34 Accidental damage to property ......................................................34 Damage ...........................................................................................34 Property ..........................................................................................34 The preamble..................................................................................35 Limits of indemnity.........................................................................35 Costs of defence .............................................................................36 Inquest representation....................................................................36 Public enquiries ..............................................................................36 Adequacy of limit of indemnity ......................................................37

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PL POLICY WORDINGS

Exceptions ......................................................................................40 The present position.......................................................................40 Mechanically propelled vehicles................................................40 Aircraft and water craft ..............................................................41 Property worked on...................................................................41 Property in custody or control ..................................................42 Fines and liquidated damages ....................................................42 Professional indemnity...............................................................42 Foreign subsidiaries ...................................................................42 Nuclear exclusion ......................................................................43 War risks ....................................................................................43 Extension of cover ..........................................................................43 Definitions ......................................................................................44 Clauses ...........................................................................................45 Conditions .....................................................................................45 Rating..............................................................................................46

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PRODUCTS LIABILITY

Common law liability......................................................................50 Contract ..........................................................................................50 Statutory liability.............................................................................51 Products liability insurance ............................................................52 Policy cover................................................................................52 Claims made...............................................................................53 Limits of indemnity ....................................................................53 General comment ......................................................................53 Legally liable ..............................................................................54 Exceptions to products cover.........................................................54

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PROFESSIONAL NEGLIGENCE AND PROFESSIONAL INDEMNITY

Duties of a professional person ......................................................56 The professions...............................................................................56 The employed professional.............................................................57 How professional negligence can arise ..........................................57 The medical profession..............................................................58 Lawyers ......................................................................................58 Accountants ...............................................................................59 Architects ...................................................................................59 Other professions.......................................................................59 Professional indemnity insurance ...................................................59 Policy cover................................................................................59 Limits of indemnity ....................................................................60 Policy conditions .......................................................................61 Extensions of cover ........................................................................61 Directors and officers liability ........................................................62 Directors duties and responsibilities ..............................................62 Insurance ........................................................................................63

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CLAIMS – PART ONE

Liability cases ..................................................................................66 Concealment...................................................................................67 Investigation ...................................................................................67 Consideration of the facts...............................................................68 Contractual conditions ...................................................................69 The decision as to liability ..............................................................70 Admissions of liability.....................................................................70

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CLAIMS – PART TWO

Defences .........................................................................................72 Contributory negligence............................................................72 Volenti non fit injuria .................................................................72 Foreseeability .............................................................................72 Act of God..................................................................................73 Limitation...................................................................................73 Denial.........................................................................................74 Questions of law and questions of fact...........................................74 Property damage claims..................................................................74 Personal injury claims.....................................................................75 The right doctor .............................................................................75 Valuation of personal injury claims ................................................76 Settlement.......................................................................................76 Offers ..............................................................................................77 Discharges.......................................................................................77 Long term claims ............................................................................78 Outsourcing ....................................................................................78

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SPECIAL RISKS – LITIGATION

Local authorities .............................................................................82 Police authorities ............................................................................83 Hospitals .........................................................................................84 Litigation ....................................................................................85 Negotiation .....................................................................................85 Arbitration.......................................................................................86 Litigation .........................................................................................86 Outline of current procedure .........................................................86

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Recent changes ...............................................................................87 Payments into court........................................................................87 Small claims court...........................................................................88 Recommendations of Lord Woolf ...................................................88 The new courts...............................................................................89 Expert evidence..............................................................................89 Payments into court and offers to settle .........................................90 Pre-action protocols........................................................................90 Adoption of recommendations.......................................................90 Conditional fees ..............................................................................91 Legal aid ..........................................................................................92

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ALTERNATIVE DISPUTE RESOLUTION – DAMAGES

Negotiation .....................................................................................94 Arbitration.......................................................................................94 Mediation ........................................................................................95 Damages..........................................................................................96 General damages.............................................................................96 Special damages ..............................................................................96 Nominal and contemptuous damages........................................96 Aggravated damages...................................................................96 Exemplary damages ...................................................................97 Punitive damages .......................................................................97 Loss of earnings and earning capacity ...........................................97 Interest ...........................................................................................98 The claw back ................................................................................98 Medical expenses ...........................................................................99 Structured settlements .................................................................100 Levels of damages ........................................................................100 Legal costs ....................................................................................101 Solicitors costs .............................................................................101 Disbursements .............................................................................101 Legal fees overall ..........................................................................102

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SPREADING THE RISK – ESTIMATING AND RESERVING

Scheduled policies ........................................................................104 The position of each insurer....................................................104 Lead insurer .............................................................................105 Layered insurers............................................................................105 Primary layer............................................................................105 Upper layers.............................................................................105 Relationship .............................................................................106 Costs and cost sharing .............................................................106 Co-operation in investigation...................................................106 What happens when the primary layer pays its limit ..............107 Reinsurance ..................................................................................107 Treaty reinsurance ...................................................................107 Facultative reinsurance ............................................................108 Special risks .............................................................................108 Raising of retentions ................................................................108 Reinsurers reluctance to take certain risks..............................108 Market capacity........................................................................108 Estimating and reserving...............................................................109 Estimating ................................................................................109 Basis of estimating ...................................................................109 IBNR claims..............................................................................110 Actuarial matters......................................................................110 Reserving .................................................................................111 Reinsurance recoveries ............................................................111 Terminations ............................................................................111 Over estimating........................................................................111 Claims settlement costs ................................................................112

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FUTURE DEVELOPMENTS

The expansion of the concept of negligence ...............................114 Stress cases ...................................................................................114 Increases in damages ....................................................................115 Changes in legal procedure ..........................................................116 Changes in compensation procedure ...........................................116 The effects on liability insurers ....................................................117 Can insurers cope?........................................................................117

APPENDICES Public Liability Policy - 1...............................................................120 Public Liability Policy - 2...............................................................135 List of Cases ..................................................................................151 Table of Statutes............................................................................153

INDEX

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Introduction Britain was recently described as a nation of willing victims and this really is a means of saying that our society has become much more litigious and conscious of its rights. The number of claims for injury and damage to property has increased very sharply, as has the amount of money paid in each case by way of compensation. In considering Public Liability Insurance and liability claims, it is necessary first to consider liability, how it is incurred, its consequences, and a means of compensation for injury or damage caused by the occurrence of the liability.

Liability – what is it? Liability is an abstract concept which proposes that where an act is committed without really considering the nature of the act or its consequences, and the act causes harm to another, then the commission of the act becomes something for which compensation should be paid. This concept is not peculiar to Britain but it is probably true to say that it is in the Anglo-Saxon jurisdictions that it has reached its high point. It is necessary to remember that the type of liability with which we are concerned is legal liability, i.e. the type of liability where there are legal consequences. There are many actions which result in unfortunate consequences where there is no legal liability – often it is suggested that there may be a moral liability, but the subject with which we are concerned does not take cognisance of this.

What are its consequences? When liability has been incurred and that has been recognised and it is a legal liability, then the consequences are that compensation must be paid. In the British system, the compensation consists of monetary payments known as damages. The way in which damages are classified and are awarded will be considered in detail later, but suffice to say that the Court has jurisdiction to award monetary compensation in respect of personal injury and will endeavour to quantify the amount of property damage by the submission of estimates, builders tenders and the like.

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How is it expanding? Liability has been expanding very rapidly. The whole concept of negligence and its consequences has become much wider, particularly in the last 15 years. In that period a development in stress claims has been seen; the question of posttraumatic stress disorder has been raised and answered by the payment of considerable sums to those allegedly affected. What can be considered an act which is likely to incur liability, has been considered most liberally by the Courts and thus the consequences can become most serious to individuals and small businesses particularly.

How are its effects mitigated? Because the effects of liability being incurred can be so serious, clearly efforts have been made to mitigate such effects, and the most common one is by way of liability insurance. All insurance is an attempt to mitigate the losses of the few, from the contributions of the many, and all forms of liability insurance are no exception to this basic rule. There are a number of different types of insurance where liability might be incurred – in motor insurance policies there is a third party section; in household insurance there are liability sections; the employers liability policy is of course well known; but it is public liability policies which are the concern of this report.

Public liability insurance A public liability insurance policy, like those issued to motorists, is concerned with liability to the general public. When the policy form is considered in detail it will be observed that there are a number of exceptions to the categories of person to whom liability might be incurred in respect of which the policy will respond. There are also certain categories of property which may be excluded from the ambit of the policy. The basic purpose of the public liability policy is however to provide a means to the policy holder of mitigating the effects of acts which he has committed which have incurred a liability.

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INTRODUCTION

Public liability – its off-shoots After public liability insurance had become established and largely as a result of the effects of the decision in Donoghue V Stephenson, 1933, it became clear that those who manufactured or put products on the market, could be liable for the consequences if through negligence the product caused injury or damage.

Products liability and professional indemnity insurance To that extent products liability insurance became established to provide cover to retailers and others in the chain of supply who might become involved in claims because of defects in their products. It has become a very rapidly expanding field of insurance because, in part, of consumer legislation passed, particularly since the entry of the U.K. into the E.U. Another area excluded from the standard public liability policy was the claim for professional negligence on the part of one who held himself out as a professional in some skill. Initially such claims were comparatively few and far between but when they did occur, they could be of substantial size. The rapid expansion of liability claims has led to a vast increase in the number of professional indemnity claims, some of which are huge. The market has always been fairly limited but has contracted still further with the practice of some professions insisting that a basic layer of insurance be carried within arrangements made by the governing professional body itself.

Future of liability and its insurance Experience shows that fields of liability can only continue to expand and the levels of compensation awarded also increase. This will make the lot of liability insurers increasingly more difficult because there has been a determination on the part of policy holders – particularly very large ones – not to bear the increased costs caused by increased claims. In respect of certain trades and industries it seems likely that liability insurers will become upper layers leaving the primary layers of insurance to be carried by the policy holder itself. Limits of liability may also be restricted because difficulties have been found in obtaining reinsurance and without reinsurance the consequences to an insurer could be catastrophic. However liability insurance has survived previous areas of difficulty and doubtless will continue to do so.

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Liability – its forms COMMON LAW LIABILITY S TAT U T O RY L I A B I L I T Y CONTRACTUAL LIABILITY T H E C O N S E Q U E N C E S O F L I A B I L I T Y AT TA C H I N G H O W I S L I A B I L I T Y E S TA B L I S H E D ? L I T I G AT I O N – I T S C O S T DAMAGES THE RISING COST OF LIABILITY CASES T H E E X PA N S I O N O F L I A B I L I T Y COMMON LAW INCREASE IN LIABILITIES S TAT U T O RY L I A B I L I T Y – I N C R E A S I N G R O L E O F S TAT E A N D E U CONTRACTUAL LIABILITY – THE USE OF INDEMNITY AND HOLD HARMLESS CLAUSES W I L L T H I S E X PA N S I O N C O N T I N U E ?

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Chapter 1: Liability – its forms In the introduction, the question of liability and what it is was considered along with its consequences and the way in which forms of liability have been, and are, continuing to expand. Public liability insurance is concerned with the insurance against the consequences of liability incurred towards third parties. Public liability claims are very often referred to as Third Party Claims – party number one is the policy holder; party number two is the insurer; and party number three is a stranger who has no relationship with the policyholder or insurer. The forms of liability with which the insurance is concerned are basically threefold – Common Law Liability; Statutory Liability; Contractual Liability.

Common law liability There are many ways in which common law liability can arise. That with which the public liability policy is concerned, is liability arising at common law, in tort. A tort has been defined as a breach of the duty which each man owes his fellows, so to regulate his actions as to cause neither injury to his person nor damage to his property. The law of tort covers many different types of breaches to duty. Those with which the public liability policy are concerned are basically negligence, nuisance and trespass. There may be some specialist forms of liability insurance which will cover other torts such as defamation and often, when policies have been issued to large retail undertakings they will be extended to cover the torts of wrongful arrest and false imprisonment.

Statutory liability From very early times, the legislature has been prepared to impose restrictions upon the freedom of action of individual citizens to the benefit of the majority of others. But the scope of legislation in this century has increased enormously and many duties have been imposed by way of statute, but it is not every breach of statutory duty which will entitle a claim to be raised.

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The general rule appears to be that where the act imposes a penalty for its breach, unless the words of the act are clear, no civil liability arises under the act towards any individual. Probably the most notorious example of this in recent times was the case of Richardson V Pitt Stanley, 1994, where it was held that the Employers Liability (Compulsory Insurance) Act did not confer upon an injured worker any right to sue a director or other controller of a company, who had failed to insure, even though it was that director’s responsibility personally to do this. This is unfortunately at variance with the compulsory motor insurance provisions, because in the case of Monk V Warbey, 1934, the owner of a car who allowed another person to drive it whilst the vehicle was uninsured, was held liable to pay compensation in respect of an injury sustained as a result of the use of the vehicle. However, the latest exposition of the law is a comparatively recent one but it does not appear to have removed entirely any doubts which existed as to the rights of action conferred by statute.

Contractual liability So far, what has been considered is what can be regarded as the general law. Underwriters are – or should be – aware of the provisions of the general law and can tailor their rates accordingly. It is where liabilities are assumed under contract that difficulties can arise. Where two people or companies of equal status contract with each other freely, then they are entitled to impose such conditions as they wish between themselves. Any restrictive conditions must be drawn to the attention of the parties at the time that the contract is concluded. If that is not done then certain statutory provisions to protect consumers, and others, may come into effect. The problem for insurers was that policy holders were often prepared to gain financial advantage from the execution of a contract, by accepting conditions which were unduly onerous. Such conditions might often leave him saddled with liabilities which at common law would not have been attached to him. The position was a particularly difficult one, because it was made clear in the case of Arthur White & Company V Tarmac, 1968, that no matter how stringent the terms the Court would uphold the contract if the terms were drawn to the attention of the defendant before or at the time of the conclusion. A defendant would not be liable if it could be shown that the course of conduct between the parties was such that the term enforced was one used in all contracts of the same type between the parties on previous occasions.

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To try and remedy any imbalance between parties, first the Unfair Contracts Terms Act 1976 was passed and later the Consumer Protection Act 1987 came into force. The position is however that an insured might still incur what can be regarded as a special liability because of the terms of a contract; how underwriters deal with this position will be considered later.

The consequences of liability attaching When liability has been established, then certain consequences must accrue to an unsuccessful party. Those consequences can be quite considerable in terms of financial penalty and whilst insurers are not normally concerned with anything other than the financial consequences of a liability claim, it may be that an insured might be required either to do something by order of the Court known as Specific Performance; or he might be required not to do something by an injunction. The position as to the sharing of costs, if the result of a claim is for financial consequences, can sometimes be somewhat obscure – it will be considered later in this report.

How is liability established? Liability is established by proving that the insured has carried out some act which has put him in breach of his duty in tort, has created a breach of statutory duty where the statute allows an action by a person injured or damaged as a result, or by a breach of his contractual liability. If that liability is not recognised by the insured and/or the insurer, and a settlement negotiated, then it will be necessary for the matter to come before the courts for a decision to be reached as to who – if anybody – is liable.

Litigation – its cost Litigation between parties is one way of resolving disputes. At the present time, litigation is being positively discouraged between parties in favour of mediation and/or other forms of Alternative Dispute Resolution.

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Litigation is commenced by a Writ or Summons on behalf of the Plaintiff to which the insured will put forward a defence. Whilst the litigation is commenced against the insured, by the terms of the policy the insurer will have complete control of the litigation and this will be considered at a later stage. The cost of litigation these days is very high indeed, and it is not unusual particularly where claims are of a small variety, for the costs on both sides, to exceed by far the amount in issue. There may therefore be compelling economic reasons for settlements to be negotiated but there may also be matters of principle which make it necessary for the case to be contested to a conclusion. In the English system costs follow the cause, i.e. he who wins in the action is entitled to receive his costs from his defeated opponent. That rule does not apply where a case is legally aided.

Damages When compensation is awarded by the Court, then it is called damages. Later in this report the whole question of damages and their classification will be considered along with some general matters relating to the amount of awards. It is however beyond the scope of this report to consider awards and their adequacy or otherwise, except in general terms. Where damages for personal injury are sought, then subject to any limits of jurisdiction of the Court concerned, the amount of damages will be at large – in other words the Court will decide what is adequate. Newspaper reports of persons seeking specific sums are normally totally inaccurate, because the only items listed are normally those in respect of losses which can be quantified such as earnings and the like. In cases of property damage the amount concerned will be established by verifiable documents such as estimates for replacement, repair etc.

The rising cost of liability cases The last 15 years has seen an explosion in the costs of liability cases, particularly those of personal injury. It is the components of the personal injury case, particularly the most serious ones which cause concern. Matters such as future loss of earnings and the cost of care, sometimes on a 24 hour basis have caused vast increases in damages. Thus in 1972 for grossly severe injuries a High Court Judge assessed damaged at £55,000. In 1989 for similar disabilities – the injuries were different – the sum of £1.5 million was awarded. In 1994 again for similar

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disabilities – again injuries different – the sum of £4.5 million was awarded. The increase still continues from that date. Such increases have caused liability insurers and their re-insurers tremendous concern. It is a trend however which seems likely to continue. The latest award of £9.2M in the case of Biesheuvel V Birrell, 1998, emphasises the problem.

The expansion of liability It is very often argued that it is the cost of claims by way of damages which has been increasing, rather than that the fields of liability have been expanding. That cannot be regarded as entirely true although there is, it must be said, some reason for the argument, and indeed some reason in the argument.

Common law increase in liabilities In considering particularly the tort of negligence in chapter two, it will be necessary to look at the concept of foreseeability. It is sufficient at the present time to say that the courts appear to be extending the boundary of what is foreseeable to bring within the ambit of negligence some matters which would never have been considered as being worthy of compensation before. Thus in a recent case, Langley V Draya & Anr, 1998, a police officer was engaged with others in the pursuit of a vehicle driven by the first defendant. The vehicle driven by the defendant had been taken without the consent of the owner; both vehicles skidded on black ice and that driven by the plaintiff struck a lamp post and the plaintiff was seriously injured, recovering £285,338 in the Court of first instance. The second defendant a Lloyds Syndicate nominated by MIB appealed. The Court of Appeal held that the first defendant knew or ought to have known he was being pursued by the police and his excessive speed exposed the police to increased risk of injury. That seems to be extending the duties of care very considerably.

Statutory liability – the increasing role of the state and EU The amount of legislation being produced by parliament and the European Union, can be considered in a paraphrase of the words of Winston Churchill – a trickle becoming a flood. Many of these Acts of Parliament and the regulations which follow them increase duties and give rights when none existed before. It must be born in mind however

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that as already considered, the statute must make it clear that a civil right of action is meant to be given to individuals.

Contractual liability – the use of indemnity and hold harmless clauses In an attempt to protect themselves from what can be very substantial legal action it is now not uncommon to find extremely onerous conditions imposed in contracts such as the sole responsibility clause. This indicates that a contractor will be liable in respect of claims to his principal, unless he can show that what occurred resulting in a claim was sole responsibility of the principal. This means to say that even if only one per cent responsibility were found against the contractor he would still be liable for the whole amount. This proposition will be considered further in chapter three.

Will this expansion continue? Undoubtedly our society is becoming much more litigious. The question of conditional fees – where the lawyer is paid only if a claim brought by his client is successful, will certainly cause an increase in the amount of litigation. To date those who were earning even comparatively modest sums were excluded from the provisions of the Legal Aid Acts and thus because of the potentially ruinous consequences of a High Court action, were unable to pursue claims. On a no win no fee basis provided there is merit in the claim, it is probable that many more will be pursued. Expansion therefore in the fields of liability, in the levels of damages awarded and in the actual number of claims can be anticipated to continue.

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Liability and the law – part one NEGLIGENCE NUISANCE T R E S PA S S S TAT U T O RY L I A B I L I T Y HOW IT ARISES S TAT U T E A N D T H E R I G H T O F A C T I O N COVER AVAILABLE PA RT I E S T O A N A C T I O N C O R P O R AT I O N S D I P L O M AT S PERSONS OF UNSOUND MIND THE CROWN

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Chapter 2: Liability and the law – part one As we shall see later the public liability policy is concerned with legal liability. To consider when the liability policy will respond in respect of such legal liability, it is necessary to appreciate the basic principles of the law in this area. As already seen the law of tort is concerned with the law of civil wrongs. There are a considerable number of civil wrongs but those with which the liability policy is principally concerned are negligence, nuisance and trespass. In some specialised areas such as those involving large retail chains, security operations and certain premises risks, the torts of wrongful arrest and malicious prosecution may be covered; and in the newspaper and print areas the tort of defamation may also be of concern.

Negligence Negligence has been defined as the omission to do something which the reasonable man governed by those considerations which ordinarily regulate human affairs would do, or doing something which the reasonable man would not do – Blyth V Birmingham Waterworks Company, 1868. There are certain essentials to negligence:

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A duty to take care. This can be the general duty which was outlined in the definition of tort or a more specialised duty in particular circumstances. The general duty has been restricted by the words of Lord Atkin in the case of Donoghue V Stephenson, 1933, when Lord Atkin considered that the duty was owed to neighbours, defined as those who ought reasonably to be within the contemplation of the defendant.

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A breach of the duty. A breach of the duty to take care will in most instances be a question of fact.

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Damage or injury. There must be actual damage or injury, mere financial loss is not ordinarily sufficient for a claim to lie.

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Foreseeability. This is probably the most difficult area because the simple rule which was found in English Law, that a person was liable for all the consequences of his action – Re Polemis 1921, was amended in 1961 by the case of Wagonmound. In that case it was decided that where a spark from a welding torch ignited some oil floating on water

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in a dock, and extensive damage was caused, then those consequences were not foreseeable to the reasonable man. The decision was in respect of an Australian case and was one of the Judicial Committee of the Privy Council and technically was not binding on English courts. But because of the composition of the Judicial Committee, as is usual in such cases, it was followed. It is in relation to this area of foreseeability that the law has been extended because the consequences of many actions are now regarded as foreseeable whereas in times past, this would not have been the case.

Nuisance Nuisance causes some difficulty in relation to public liability insurance because very often damage caused by nuisance is the result of a continuing state of affairs, rather than of a single defined act. It has been described as the unlawful disturbance of a person in the enjoyment of his property or in the exercise of some right. Nuisance does not depend on the same essentials as the tort of negligence, although in the case of Wagonmound Number Two it was held by the Judicial Committee that foreseeability applied in cases of nuisance as well as in cases of negligence. In nuisance two things only have to be proved: •

Injuria – the actual infringement of the right.

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Damnum – actual damage.

There are two types of nuisance, the first being a public nuisance which is in fact a crime and it is only in restricted circumstances that it becomes a tort actionable at the suit of a private person. The second type of nuisance is a private nuisance classed as disturbances of servitude attaching to land or wrongfully causing the escape of deleterious things onto another persons land. In general terms the occupier is the person normally liable for nuisance, even though it might have existed before he took possession of the property. However, if the occupier is not aware of the existence of the nuisance and he could not with reasonable care and skill have discovered it, he will not be liable, but if he should become aware of the nuisance then his liability dates from that time. It has already been stated that public liability insurance, can be the subject of difficulty in relation to nuisance, because the escape of fumes or noise, or of other matters may take place over a period of time. Strictly, each escape is the subject

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of a separate claim, but because after the first incident the insured might be expected to have taken precautions to prevent the damage occurring again, the policy may not respond.

Trespass Trespass has been defined as interfering, forcibly with a man’s personal property or the infringement of his civil rights. It is not usual to find trespass being the subject of an insurance claim but it can happen and it is not necessary to prove damage to succeed in an action for trespass. The types of trespass are: •

Trespass against the person. Injury to the person caused directly can be the subject of an action for trespass but because the requirement of an action in negligence must be proved and the ordinary rules of limitation apply in trespass against the person cases, there is no real advantage in pursuing a claim for personal injury via this route.

•

Trespass to land. Such trespass is caused by unlawfully coming onto the land or premises of another. It is more usual to find that trespass is used as the defence rather than as a ground for action, but in the case of children, statutory amendments to the law have caused certain responsibilities to lie upon the land owner in respect of certain types of trespass.

•

Trespass to goods. This arises where unlawful action is taken in respect of another’s goods. The most usual type of claim found here is against the local authority where goods are taken in error by local authority refuse collectors.

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Cattle trespass. A very common type of action in respect of which the public liability policy would ordinarily respond. Changes to the law brought about by the Animals Act 1971 have made the action less common.

Statutory liability As already indicated the importance of statutory liability has steadily increased because of the way in which rights and responsibilities have been amended by Acts of Parliament and now by Directives of the EU. Such Directives are ordinarily embodied into English Law by statute rather than by reference to the Directive.

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How it arises There have been a number of incidences where liability at common law has been amended or modified by statute. In some instances such statutes merely codify the common law, whilst others have been re-enacted to remedy what have been seen as injustices. In some instances statute has imposed duties as in the case of compulsory insurance.

Statute and the right of action Not all statutes give a civil right of action but the position is not entirely clear in some instances and will very often depend upon the interpretation of the language of the statute given by the courts. In some instances the position is quite clear as in the Occupiers Liability Act, or in the Animals Act, where the enactment of a statute either confirmed rights which already existed or extended the rights already indicated, the legislature perceiving that this was necessary. The general rule appears to be that where the Act imposes a penalty for its breach, unless the words of the Act are clear, then no civil liability arises under the Act. The most recent example of this is probably to be found in the case Richardson V Pitt Stanley, 1994, where it was held that the Employers Liability (Compulsory Insurance) Act 1969 did not entitle an injured worker to sue a director or other controller of a company who had failed to insure. The Court of Appeal held that the Act merely imposed a criminal penalty and this unfortunately now creates a situation where the law in relation to compulsory employers liability insurance appears to be at variance with the law in relation to compulsory motor insurance. In the case of Monk V Warbey, 1934, the owner of a car who allowed another person to drive it whilst the vehicle was not insured, was held liable to pay compensation to a person injured as the result of the use of the vehicle.

Cover available Most public liability policies automatically give cover in respect of legal liability imposed under statute. As will be seen later the cover applies only in respect of accidental personal injury or accidental damage to property.

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Parties to an action The general rule in English Law is that any person can sue or be sued. As with any general rule, there are certain exceptions in that some categories either have some specific privileges or disabilities as to their legal capacity. The number of such exceptions has over the years steadily diminished and the most important category remaining where there is a restriction on the right to sue or to be sued is infants. In law an infant is a person who has not attained his majority, at present 18. In terms of contract, a person who is an infant can enter into valid contracts of only two kinds. Those for necessaries and those substantially for his benefit. In relation to tort, a person who injures an infant is liable to him if he is in breach of duty in the same way that he may be liable to any other person. However, the infant may pursue an action only through a relative or guardian or in the appropriate case, a person appointed by the State – in all cases the responsible party is known as the next friend. The duty owed to an infant may be more stringent because of the fact that infants as is generally known, may take less care for their safety than adults. The age may need to be looked at as a very relevant factor because the standard of care to be expected of a very young child is very different from that to be expected from an adult. In the case of an unborn child, it has been established that there is no liability for an injury caused whilst the child is in the womb unless the child is born living and has an independent existence from the mother. The Congenital Disabilities (Civil Liabilities) Act 1976 is important in relation to public liability and products liability insurers. It has been established that for an action to succeed where an unborn child has been injured whilst on en ventre sa mere, the child must be born living. If the child is stillborn then no action will lie on his behalf. But this does not alter the fact that an action may lie on behalf of the parents if a still birth has been caused as the result of exposure to noxious substances or an injury to the mother whilst carrying the child. An infant can be liable in tort in the same way as an adult and minority in itself is no defence. It may be however, that the absence of wrongful intent and the degree of care required of an infant will vary with the age. At Common Law a parent is not liable for the acts of the child unless the child was acting as a servant or agent of the parent and the parent can also be liable in respect of negligence if the child is given an opportunity of doing mischief – Newton V Edgerley, 1959. The position may be a little different in criminal law where parents may be ordered to pay compensation in respect of an act carried out by the child.

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Corporations There are two types of corporation, the corporation sole consisting of one person who in his capacity as the holder of a particular office acts as a corporation. The most well known example of a corporation sole is the monarch. Corporations aggregate consist of many persons joined together for a particular purpose or venture as with a public limited company. Corporations can now sue and be sued in exactly the same way as an ordinary person; a corporation can of course only act through its servants or agents and if it is liable, will be liable in respect of their acts. A corporation can also only act to the limit of its powers and if it acts beyond the powers given by its constitution then that act may be ultra vires and void. This is unusual but not unknown as limited companies generally include in their Articles of Association a catch all clause, which allows them to do all such acts which are necessary in the interests of the company. Partnerships are different from incorporated associations because a partner is jointly and severally liable for the acts of a partnership whilst he is a member. So in the event of a tortious act one partner may be wholly liable to the extent of his assets and the partner cannot sue another member of the firm in respect of torts committed during partnership operations. With other unincorporated bodies, they have no separate existence apart from their members and they can only be sued by a representative action. Usually the officers of the association are nominated to accept process on behalf of the association. Where a member of the club is concerned – and this is important in considering the position in public liability insurance – he cannot sue the club because as a member of the club he would effectively be suing himself.

Diplomats Diplomats accredited in the United Kingdom are immune from legal process, both criminal and civil; such immunity is also available to foreign sovereigns and heads of other states. Such immunity is given from legal process only so long as they retain their diplomatic status and if that status is lost then they can be sued. Diplomatic immunity may be waived by the diplomat but usually friendly powers in relation to civil actions involving personal injury are prepared to waive their immunity. There is one further point to note and that is so far as limitation is concerned, the time begins to run from the time that the diplomat ceases to be entitled to diplomatic immunity.

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Persons of unsound mind Evidence of being of unsound mind is not sufficient to absolve a person from the consequences of a tortious act. The standard of care to be applied is that of the normal person and if the abnormal person deviates from that standard of care then it would seem logical that he should be liable. A person having charge of a person of unsound mind may be liable for his negligent control and this is of particular importance to hospitals and local authorities and there have been a number of instances where such bodies have been sued on the strength of the actions of persons who have been returned to the ‘care of the community’. Persons under the influence of drink or drugs are not absolved from the consequences of their actions under such influence. If a person suffers from a medical condition of which he is aware and fails to take the necessary medication to keep the condition under control and is involved in an accident he may well be liable in tort, although if he is unaware of the condition then no liability will fall upon him. Mansfield V Weetabix, 1997.

The Crown The Crown at common law was subject to an immunity from suit, but by the Crown Proceedings Act 1947 that immunity was abolished except in a small number of cases, some of which have been altered since. The Queen however in her personal capacity remains unable to be sued.

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Liability and the law – part two EMPLOYER/EMPLOYEE P R I N C I PA L A N D A G E N T INDEPENDENT CONTRACTORS DEFENSES TO AN ACTION DENIAL I N E V I TA B L E A C C I D E N T NECESSITY VOLENTI NON FIT INJURIA ACT OF GOD S TAT U T O RY A U T H O R I T Y UNFORESEEABILITY S TAT E O F T H E A RT CONTRIBUTORY NEGLIGENCE L I M I TAT I O N CHANGES IN PROCEDURE STRIKING OUT

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Chapter 3: Liability and the law – part two A Corporation can of course only act through the medium of its officers, employees and possibly agents and contractors. Because of these relationships the concept of vicarious liability where one person is held liable for the acts of another has been developed. Relationships which need to be considered are those of: •

Employer/Employee (previously called Master & Servant)

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Principal and Agent

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Principal and Contractor.

Employer/employee Where an employee is acting on behalf of his employer in the course of his employment then the employer is liable for the consequences of such acts. Whether the relationship of employment exists is a question of fact basically to be determined if there is a right of control on the part of one over the other in the manner in which the work is to be done; in other words, the employer cannot only tell the employee what to do but how to do it. There has been much argument over cases where the employer has said that the employee was acting outside the scope of his employment but the high point is probably in Century Insurance Co. V Northern Ireland Road Transport Board, 1942, when a petrol tanker driver threw away a lighted match whilst filling his tanker with petrol and the employer was held liable on the basis that the act was an unauthorised one being done in an authorised manner. Importantly the employer can be held liable – but not in all cases – for wilful wrong doing as in the case of Lloyd V Grace Smith & Co., 1912, and equally the employer can be liable for the acts of a professional man in his employ. Stokes V GKN, 1968. This is extremely important because more and more professional people take up employment rather than working in a self employed capacity and the employer will not necessarily know the nature of the acts which they are doing on his behalf, but he will be liable nevertheless. The other circumstances where the employer might be liable may be negligence in selecting his employees or for failing to control them.

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Principal and agent The Principal will be liable for the act of his agent provided that the acts are authorised and authorisation may be specific or by implication. This relationship can be of importance and insurers have been held liable in numerous instances for the acts of an agent done on their behalf.

Independent contractors This is a relationship which has caused much difficulty, and many claims, in the public liability field. The general rule is that the principal is not liable for the acts of an independent contractor but there are a number of exceptions: •

Where the wrongful act has been authorised or subsequently ratified.

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Where the principal is negligent in employing the contractor.

•

Where the act is one to which a rule of strict liability will apply.

•

Where the contractor is employed to do on a highway a dangerous act other than the ordinary use of the highway.

•

Where the contractor is employed to do work which is extra hazardous.

The principal will be liable in respect of damage caused by acts as above but he is not liable for mere acts of collateral negligence on the part of the contractor, his employees or agents. In order to protect themselves against the acts of contractors, principals will usually insist on the use of a specific form of contract which may include some form of indemnity, hold harmless clause or a clause seeking to protect the principal from liability. It is because of these conditions that underwriters were chary about the granting of contractual liability cover and even now whilst contractual liability may be covered, it may be covered in respect only of certain standard contracts with which the underwriter is familiar. Any other contracts with wordings with which the underwriter is not familiar may need to be scrutinised before cover is given. The question will be considered further when considering claims investigation.

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Defences to an action The mere fact that a claim has been made by a claimant does not mean automatically that the person against whom the claim has been made is liable. There are some instances which are quite rare in English law where the defendant is subject to the rule of strict liability. These relate principally to the escape of noxious or dangerous substances from land or the escape of fire and there may be a statutory liability in respect of the latter under the terms of the Fires Prevention (Metropolis) Act, 1774. There are certain defences which can be regarded almost as standard defences and details of these will be considered.

Denial The most obvious defence to any action is simply that the defendant did not do it. This is basically what is meant by denial. Obviously more detail of that denial has to be given in formal pleadings and as will be seen later in this chapter changes in procedure will make the task of the defendant ever more difficult.

Inevitable accident If the defendant can show that he exercises reasonable care and yet despite that the accident occurred he will be under no liability. It is a very high burden of proof which has to be discharged and really relates probably to a more robust age when such defences were common.

Necessity The defendant may be excused if it was necessary to avoid greater harm by taking the action which he did. All of these cases relate to property when action was taken to avoid the spread of fire. It is difficult to see how such a defence could succeed in a case involving personal injury.

Volenti non fit injuria This phrase merely means that to the volunteer no harm can be done and means that where a person knew the risk and voluntarily consented to run it, then he cannot afterwards complain of the danger or damage he suffered. As a defence it is used very little at the present time.

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The distinction between this defence and that of contributory negligence studied below is that if the defence of volenti succeeds then the defendant is completely absolved from responsibility. It has to be borne in mind that it is not sufficient to show knowledge of the risk but there has to be true consent and the defence will not succeed where the plaintiff was under a legal or moral duty to protect life. It does not appear that the defence will succeed where the plaintiff is a member of a service which has to provide rescue or law enforcement procedures.

Act of God An Act of God can be defined as a circumstance against which no human foresight can provide and of which human prudence is not bound to recognise the possibility. Nichols V Marsland, 1876. This is the defence which is usually considered when damage has been caused as a result of violent weather conditions. After any period of violent weather claims are made in respect of damage caused by falling trees, falling slates or tiles and other incidents. It is necessary for the defendant to show that his trees were in a proper state and had been properly inspected and maintained and yet as a result of the violence of the wind, the damage had occurred. Again with slates falling from roofs, the defence must be that the roof was properly maintained and showed no evidence of wear before the violent weather occurred. As a defence Act of God is not usually terribly successful. One of the reasons is the sheer unpredictability of British weather and thus damage is caused by circumstances which merely precipitated an accident which was waiting to happen. Such weather claims are of great importance to household insurers in respect of the public liability sections contained within their policies.

Statutory authority The defendant may plead that he had statutory authority to carry out the act which he did, but if he does so, then he must show that the statutory power given to him was exercised exactly in accord with the words and intentions of the act.

Unforeseeability The question of foreseeability has already been considered and it is a question for the defendant to show that the consequences of the act were not foreseeable to the reasonable person. As a defence this is used very frequently but unfortunately

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the bounds of what is foreseeable to the reasonable man appear to be constantly stretched by the courts. Later in this report the question of stress claims will be considered because it is in that area that the courts appear to have been stretching the bounds of foreseeability and thus extending the liability of defendants and their insurers.

State of the art This is a defence which was incorporated into the Consumer Protection Act and is taken directly from the EU Directive relating to consumer affairs. It has been the subject of great criticism by the consumer organisations and whether it is a defence which can succeed, will depend to a very large extent on the quality of the evidence available to the defendant, as to the state of knowledge in relation to a particular product at the time.

Contributory negligence In 1945 the Contributory Negligence Act was passed and this did away with the old common law principle that a person who was guilty of contributory negligence would not recover at all. Nowadays contributory negligence is decided on the balance of fault between the parties and it is probably the most common defence in use, although courts tend to be somewhat reluctant to allow the defence to succeed particularly in cases of employment.

Limitation In every civilised community it is necessary for a line to be drawn at the point following an act beyond which no legal action can be taken. In English law the standard period is three years in respect of personal injury claims and six years in respect of claims for property damage. The position becomes more complicated because of some of the terms of the Limitation Act 1980, which were incorporated because of the difficulties experienced by those who suffer from industrial disease caused over a long period of time. Industrial diseases, to date, have not been of great importance in relation to public liability insurance but certainly following some of the bystander and children’s cases which have been heard, they have to be considered now as providing a risk to which the policy may be forced to respond. It has also to be born in mind that in relation to disease cases a company can be restored to the Register of Companies within a period of 20 years of having ceased to trade. This would allow proceedings to be taken by a person alleging

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that a disease had been contracted as a result of the negligence of a company restored to the Register – Companies Act 1989.

Changes in procedure Disclosure of defence: the onus of proof in any case rests squarely upon the plaintiff and the question of what must be proved by the plaintiff has already been considered. It was always the privilege of the defendant merely to give a straight denial of the allegations made without going any further. By the recommendations of the Woolf report, defendants now have to give full details of their defence and in fact in any letter denying responsibility even before proceedings have commenced, they will still have to give details of their case. This can put defendants at a grave disadvantage because it has to be borne in mind that whilst a claimant has three years in which to bring his claim, by the terms of the time limits specified by Woolf, the defendant may have only six weeks in which to prepare his defence. Underwriters must be aware of the possible effects of Woolf which again will be considered later.

Striking out On the more optimistic side it has become easier for insurers, on behalf of their policy holders, to have cases which are not pursued with expedition struck out. Essentially this has meant that claimants must stick to the rules just as fastidiously as defendants do.

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Public liability cover O F T H E U T M O S T G O O D FA I T H POLICY WORDINGS A C C I D E N TA L A LT E R N A T I V E W O R D S PERSONAL INJURY P H Y S I C A L A N D M E N TA L I N J U RY S T R E S S – P O S T T R A U M AT I C S T R E S S D I S O R D E R SICKNESS, ILLNESS OR DISEASE SHARING ARRANGEMENTS A C C I D E N TA L D A M A G E T O P R O P E RT Y DAMAGE PROPERTY THE PREAMBLE LIMITS OF INDEMNITY COSTS OF DEFENCE I N Q U E S T R E P R E S E N TAT I O N PUBLIC ENQUIRIES ADEQUACY OF LIMIT OF INDEMNITY

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Chapter 4: Public liability cover Public liability insurance, like all other classes is subject to the Common Law principle of utmost good faith (uberrimae fidei). The other conditions precedent such as insurable interest are normally satisfied without difficulty but utmost good faith needs to be considered a little more deeply.

Of the utmost good faith The obligation upon the insured is to disclose all of the material facts relating to the risk which he is asking the insurers to undertake. There is an equal obligation upon the insurers and this involves their disclosing any onerous or unusual terms in their policies. It is unusual with commercial risks of this sort for there to be anything other than a full and frank disclosure of material facts and these will include any hazards particular to the risk, the claims cost and claims experience and whether there are any outstanding matters of which insurers should be aware. It is unusual for there to be any breaches of the duty on either side. The leading case on the subject is the House of Lords decision of Pan Atlantic V Pinetop, 1994. The questions considered by the Court were whether any circumstance under consideration had to be decisive in leading an insurer to decide whether to accept the risk and if so on what terms. The Court decided that materiality did not require the application of the decisive influence test. The second question was whether that in order to avoid the policy the insurers had to show only that the circumstance was material in accordance with the test or did they have to show that materiality affected the making of the actual contract on the relevant terms. The Court decided the latter and a subjective test is now introduced in that it would be required by insurers to show not only that the fact was material but also that it was material to the particular underwriter concerned. If the underwriter would have ignored the material fact, insurers will not be able to avoid the policy. Allied to the question of non disclosure is that of misrepresentation. The whole package can be regarded in the light of concealment. Concealment takes place when for any reason the proposer fails to reveal facts which are material and if there is concealment, then the insurer is entitled to declare the policy void ab initio, although he may decide to allow the policy to remain in force.

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The most recent case on misrepresentation in liability insurance, although an EL case, has equal force in looking at public liability insurance. It was the case of A & B Painters V Economic, 1983, where a claims experience was altered by a broker to induce the insurer to charge a lower rate of premium. When a claim occurred the true situation came to light and the policy was declared void. In an action brought by the policy holder who did not know the alteration against the insurer and the broker, the broker was found liable.

Policy wordings In considering what is normally the standard cover under a public liability policy it has to be born in mind that at no time was this category of business subject to a tariff. This means to say that there was no market wide wording and each underwriter chose the wording best suited to his book of business. As an appendix wordings will be found. Each of them incorporates a products liability wording which it will be necessary to consider at a later stage.

Accidental The public liability policy covers liability in respect of accidental death or accidental personal injury or accidental damage to material property or accidental obstruction etc. The word accidental has to be considered very carefully indeed. What is the intention of the policy? It is to provide cover for the results of unexpected events not for events which are deliberate or gradually operating, although as will be shown, disease claims are becoming more important in relation to this category of business. The dictionary definition of ‘accident’ is defined as something happening by chance, unintentionally or unexpectedly and despite the clarity of this dictionary definition the courts have sometimes found it difficult to construe the words in a policy. Probably the most important case on the subject in recent times was that of De Souza V Home and Overseas Insurance Company, 1990, where the Court of Appeal held that accidental must involve the idea of something fortuitous and unexpected, as opposed to something proceeding from natural causes. Indeed in this case the Court of Appeal said that it was no longer safe having regard to changes in social circumstances to rely upon some of the old authorities from the 19th Century and earlier. It must be born in mind again that the word ‘accidental’ is construed from the insurers point of view and not from the point

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of view of the party who suffers the damage. In many respects the accident may therefore be regarded as an uncovenanted act.

Alternative words Because of the difficulties that had been experienced in construing the word accidental, in the mid 1970’s, some insurers decided to delete the word entirely and to use instead a more complex formula of words which it was hoped would add clarity to the situation. These words normally said something like the policy will not cover the consequences of any act which was foreseeable to the insured or the consequences of any act where damage or injury was foreseeable to the insured. These words, despite their benevolent intentions, led to even more difficulty and even some of those companies which had decided to depart from the use of the word ‘accidental’, now seem to be using them once more.

Personal injury It will be observed that the operative clause refers to personal injury in advance of the property damage element. Personal injury is now interpreted by the Courts extremely broadly. Whereas in the past the insurer tended to be considering only cases of physical injury where actual trauma had been experienced by the body, now it is necessary to consider also mental injury and as already indicated sickness, illness or disease.

Physical and mental injury Physical injury, as already indicated, comes about through an actual trauma to the body; mental injury can have much more sophisticated causation. It was held in the case of Page V Smith, 1994, that a claimant who was suffering from ME and was involved in a motor accident which was not dreadfully severe, and in which he sustained no physical injury, could nevertheless obtain damages for mental injury because the risk of physical injury was foreseeable. The degree of foreseeability is that required of the reasonable man and it therefore has to be considered whether it is reasonable that some things will have greater mental effect upon some claimants than upon others.

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The position is of importance in public liability insurance because the Hillsborough cases were in fact all in their nature public liability claims.

Stress – post traumatic stress disorder Claims are now being made for stress and post traumatic stress disorder (PTSD) in circumstances where even a short time ago, such claims would not have even been contemplated. Many of these cases will of course involve motor insurance and employers liability insurance rather than public liability insurance, but nevertheless the PL insurer is not immune to claims of such nature and the Hillsborough cases have already been mentioned. PTSD is now recognised by the Courts provided that certain tests are satisfied. Undoubtedly this element of claim is going to become of more importance than it has been considered up to date.

Sickness, illness or disease Initially the public liability policy was considered to cover sickness and/or illness. These two conditions can be regarded as somewhat different from disease because they can sometimes be attributed to single individual actions such as the consumption of food which has been contaminated. Early primitive policies in respect of products liability tended to specialise in what was then called ptomaine poisoning. It will be observed that the operative clause in the specimen policy in the appendix does not in fact mention sickness, illness or disease, because the courts have already held that such conditions can be regarded as falling within the definition of personal injury. Disease is normally caused as the result of exposure over a long period of time and whilst it has not yet been determined by the courts the Opinion of Senior Leading Counsel has been given, to the effect that a public liability policy can be required to respond in respect of that part of the disease which occurred during the currency of the policy. This is to be contrasted with the position in employers liability insurance where the word ‘caused’ means that the policy responds to anything caused during its currency.

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Sharing arrangements It has been beneficial to insurers to enter into sharing arrangements in respect of industrial disease cases, without enquiring too closely into the nature of causation and to regard all periods of exposure as being of equal importance. Certain guidelines relating to apportionment have in fact been devised and are in use between employers liability insurers. No such guidelines yet exist in so far as public liability claims are concerned, but if the tendency towards an increase in the number of such claims continues, then it is likely that some of the sharing arrangements will be needed, to avoid the leakage from the market of substantial sums of money in legal costs.

Accidental damage to property The question of what is meant by accidental has already been discussed and really the concept of the uncovenanted act applies both in considering claims for personal injury and claims for damage to property.

Damage It will be observed that the operative clause of the policy refers to accidental loss of, or accidental damage to, material property. The policy will respond to claims for economic loss but normally only in respect of defence costs because claims for economic loss alone are not normally considered in English Law. The case of Junior Books Ltd V Veitchi, 1983, was thought to have widened the rule, however it has been made clear that the case has been interpreted very strictly and many cases which have been brought seeking to rely on Junior Books have failed. The position may be different if there are contractual issues involved, provided that any figures used are not by way of penalty but are in fact a means of providing compensation.

Property Clearly damage to the insureds own property and property in the insureds custody or control needs to be excluded; these risks can be covered but under material damage policies and therefore liability cover is not normally required. There may be an extension in respect of employees goods and effects, because

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under the employers liability policy whilst small items of clothing are usually covered simply to avoid the difficulties provided by arguments of this sort, there is no obligation upon the employers liability insurer to provide such cover.

The preamble The preamble to the operative clause is extremely important because the company agrees to indemnify the insured in respect of all sums which the insured shall become legally liable to pay as compensation. The first point to be noted is that this is a policy of indemnity and the level of indemnity can be fairly easily ascertained by the amount of the claim from the third party. Some public liability policies refer to sums which the insured shall become legally liable to pay as damages. The word compensation is wider in scope than damages and could in fact cover an award made by a mediator or arbitrator if the insured should have included a legal obligation to pay such sums and the arbitration or mediation was undertaken with the consent of the insurer. There has been an argument for some years as to whether in the United Kingdom exemplary damages, or in the United States punitive damages, are covered under the public liability policy. There is now no doubt that such sums are recoverable by the insured because if it is the intention of the insurers to exclude payment of such sums, then the wording of that policy must be so designed. Although enunciated by the House of Lords, this is merely an application of the old common law rule that a document is construed strictly against its maker. Lancs CC V Municipal Mutual, 1996.

Limits of indemnity The operative clause concludes by indicating that all compensation payable by the insured to any claimant or number in respect of any one occurrences or of a series shall not exceed the limit of indemnity. The limit of indemnity is to be found in the schedule, however reference to the extensions indicates that costs awarded to a claimant or incurred in the defence of any claim will also be paid. To seek to have an inclusive limit of indemnity as in the employers liability policy is seemingly quite difficult because it has been held in a Canadian case, Dominion of Canada General V MacCulloch, 1991, that where a motor insurer denied liability in respect of indemnity then he remained liable to defend the insured and proceedings brought against him. The court took the view that the obligation

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to defend and pay costs was entirely separate from the obligation to indemnify. Wordings must therefore be considered very carefully.

Costs of defence The insurer will also undertake responsibility for the payment of the costs of defending proceedings provided they are incurred with the consent of the insurer. This is straightforward in the sense that ordinarily in public liability cases the insured is perfectly happy for the insurers solicitors to take over and deal with the claim as they are entitled to do by the terms of the policy as will be seen later. It is rare for the insured to wish to nominate a solicitor of his own.

Inquest representation It will be seen again in the extensions that the insurer is prepared to pay the costs of representation at any coroners inquest or fatal enquiry for defending proceedings of any Court of Summary Jurisdiction in respect of any act or omission causing or relating to any event which may be the subject of indemnity under the policy. For many years it was the custom for the section to refer to the costs of solicitors representation but over the years insurers have recognised that very often it is cheaper for Counsel actually to carry out the representation.

Public enquiries Many of the disaster cases which have occurred over the last few years have involved a public enquiry to determine the cause. These public enquiries can go on for a very long period of time and if representation is provided under the terms of a policy, the amount involved can be very substantial indeed and often will exceed in itself the limit of indemnity. For example, as far back as the 1960’s in a disaster on the Isle of Man, costs of over £1m were incurred. There is no obligation upon the insurer to provide representation at such an enquiry, but very often it is in the interests of the handling of the claim which may result from the disaster that brings about the insurers consideration of representation. If issues of liability appear clear cut and the insurers are obviously liable then there is no advantage to the insurer in agreeing to represent at the enquiry under ordinary policy cover. It is however

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possible to extend the policy by payment of an additional premium to deal with the representation at public enquiries and similar proceedings.

Adequacy of limit of indemnity It will be seen from what has been said before that it is vitally important that the limit of indemnity is sufficient under the public liability policy. How this is to be determined is a very difficult question because it is not only the very large businesses and undertakings which receive the substantial claims. However, when £4.3M were paid to one claimant in respect of one personal injury claim, as in the Leung case, it will be seen that the selection of a proper limit of indemnity is difficult. Now that an award of £9.2M has been made, this decision is even more difficult. Comparison with the EL situation shows that insurers have limited their liability now to £10M and the government will recommend a limit of indemnity of £5M in the new EL legislation. Many insurers will not be prepared to give very high limits of indemnity, leaving it to the insured to provide what cover he needs after the basic primary level has been provided. Again as will be seen later a very high limit of indemnity may be scheduled. Insurers really should avoid the giving of advice, so far as limits of indemnity are concerned, lest if the limit is found to be too low they are faced with an action for wrongful advice.

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PL policy wordings EXCEPTIONS THE PRESENT POSITION M E C H A N I C A L LY P R O P E L L E D V E H I C L E S A I R C R A F T A N D WAT E R C R A F T PROPERTY WORKED ON PROPERTY IN CUSTODY OR CONTROL F I N E S A N D L I Q U I D AT E D D A M A G E S PROFESSIONAL INDEMNITY FOREIGN SUBSIDIARIES NUCLEAR EXCLUSION WAR RISKS EXTENSION OF COVER DEFINITIONS CLAUSES CONDITIONS R AT I N G

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Chapter 5: PL policy wordings

Exceptions Like all policy forms, those relating to public liability insurance are subject to certain exceptions from the cover. This class of business was for some years the subject of much criticism because there were so many exceptions of different types. There were those which related to risks which insurers considered extra hazardous and which they were not prepared to cover, except for substantial additional premium in somewhat exceptional circumstances. There were those where cover probably should be found with another category of business; the principal one in this field was the exception relating to motor vehicles. There were those which were positively uninsurable such as the radio active risk, although for many years insurers had been prepared to cover risks arising from the handling or use of radio-isotopes. It has to be remembered that basically the public liability policy was designed as a premises risk. Work away was regarded as something which was extra hazardous and attracted premium accordingly. What the underwriter has to consider is the risk of exposure to injury to third parties or damage to their property. With a premises risk this arises when visitors come to the premises; with work away the hazard is of course being taken from the premises to premises owned or occupied by third parties and there is a greater exposure. All the exceptions which still remain for the policy have to be considered in this light.

The present position The number of exceptions has gone down very considerably but there are some exceptions which have always been present and which continue so to be.

Mechanically propelled vehicles Mechanically propelled vehicles or mobile plant; insurance for this type or risk can be found more properly in the motor section of the commercial department of the insurer. It will be observed that the exception is restricted to vehicles

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licensed for road use or for which compulsory motor insurance is required or which are more specifically insured. The wording of the exception then goes on to pick up and give cover for the loading and unloading risk, only part of which is covered under the commercial vehicle policy. It allows for the use of mechanically propelled vehicles or mobile plants as tools in trade, unless again they are more specifically insured or unless compulsory motor insurance is required. This will refer to site plant, the use of which is restricted to a building or contracting site, or to motor vehicles which are not licensed and used on internal roads. Finally, this made clear that the exception does not apply to unauthorised movement on insured premises or contract site. Yet again it is made clear that if compulsory insurance is required then the exception will operate.

Aircraft and water craft Aircraft and water craft; because these risks are more specifically insurable they are excluded and it will be observed that the wording no longer refers solely to aircraft but includes spacecraft, hovercraft and watercraft other than barges, motor launches and manpowered craft used on inland waterways. This cover may be necessary because particularly in the north of England many industrial undertakings are close to canals and other waterways and have their own wharves. The liability risk in respect of such craft can quite properly be covered under the public liability policy.

Property worked on That part of any property upon which work has been carried out; this exception has caused considerable argument and difficulty over the years. Insurers have tended to limit the application of the exception by using the words ‘that part of any property upon which the insured or any servant or agent is or has been working’. Thus, if a painter were using a blow lamp on a window sill and the sill caught fire which spread and burnt down the whole property ‘that part of’ would be the sill. The only part of the damage not covered therefore would be the comparatively modest amount is respect of that piece of wood or plastic and the remainder of the damage would fall in the terms of the policy. Insurers have from time to time taken the point that the exception should be much wider but the general interpretation is that the circumscribing words have a very strong limiting effect.

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Property in custody or control Property in custody or control; the wording of the exception makes it clear that this is an exception quite wide in its application because it applies to property belonging to the insured, held in trust by, borrowed, rented, leased or hired, which really cover most of the circumstances in which property can be held by one person whether on his own, or on behalf of another. The exception does not apply to personal effects of directors, employees and visitors. Technically the employers liability policy will not include loss or damage to the effects of an injured person but it is usual for items of clothing and other minor items to be paid. The employers liability insurer might however take a very different view if the effects of the employee were for example to include a Rolex wristwatch valued at £10,000 and might seek to have the public liability insurer involved as well. Buildings and contents temporarily occupied by the insured are outside the scope of the exception, as are premises which are hired, rented, leased or lent, unless the insured has by the terms of an agreement assumed a responsibility which otherwise would not fall upon him.

Fines and liquidated damages This particular policy excludes the first £100 but that is by no means a general exception to be found in all policies. There are some general exclusions which are worthy of mention. Liability in respect of liquidated damages or fines or penalties which attract solely because of a contract or agreement. In many contracts to avoid argument over the exact sums which are involved the agreement will specify liquidated damages or fines between the parties or other penalties. Because the insurer has no knowledge of such agreements then clearly this must be regarded as an uninsurable risk.

Professional Indemnity Professional indemnity risks are excluded where the advice is given to the insured via a fee or in circumstances where a fee would normally be charged. This can be somewhat difficult because very often in a contracting risk for example the contractor will give advice which could be regarded as professional advice. It is a question of circumstance and fact in each case.

Foreign subsidiaries Foreign subsidiaries of the insured are not within the scope of the indemnity because again the underwriter has no knowledge necessarily of the law applicable in such overseas territories.

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Nuclear exclusion The nuclear exclusion is very carefully worded so that the use of radioactive isotopes as already mentioned would normally be covered.

War risks The war risks exclusion is in the usual form.

Extension of cover The major extensions relate to legal costs, a subject which has already been discussed in chapter four. The other extensions relate to personal representatives who will be indemnified in the place of the insured if the insured should die. There is an extension in respect of legal costs and expenses incurred in the defence of criminal proceedings brought under the Health and Safety at Work Act. The extension applies to the costs of prosecution and to legal costs and expenses but does not apply in respect of fines and penalties of any kind nor does it apply to the costs of an appeal. That latter may vary somewhat if the insurers consider that it is in their – as well as their insured’s – interest to pursue an appeal. It is very important to note that where the policy is issued under joint names, it will indemnify each party in the same manner as if a separate policy had been issued to each of them. That can sometimes cause a situation where if a number of companies are insured under the same policy, one company as a separate legal entity may sue another in respect of a loss which has occurred. There is a personal indemnity in relation to directors or employees of the insured which will operate on request for such indemnity to be granted and provided that there is no indemnity under any other insurance. It may be that there is indemnity provided under another policy which again has a non contribution clause. Under the terms of the decisions in Gale V Motor Union Insurance Co & Loyst V General Accident, the clauses will cancel each other out. There is the usual Defective Premises Act 1972 Cover given and this is found in most policies providing a public liability indemnity. However, the insurers are not liable for the cost of remedying the defect or alleged defect or in respect of any more specifically insured liability. There is an extension giving an indemnity to the principal and this is designed to cut out any of the more expensive types of litigation which have been carried on over the years between the parties to a contract.

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There is an interesting extension in that the personal liability of any director or employee or member of the family accompanying a director or employee on a business trip in any part of the world will be covered. However, this does not cover the use of motor vehicles, own property, liability more specifically insured and liability for death or injury to any member of the family. Again there is a personal indemnity in respect of legal costs and expenses in the defence of any proceedings brought under the Consumer Protection Act. It will be observed that deliberate criminal acts or omissions are excluded. In this particular extension insurers have decided that it is only the solicitors fee which will be payable but as discussed in chapter four it can often be cheaper to utilise the services of a barrister than a solicitor. Finally, there is a contingency liability in respect of motor vehicles and this will apply where for example an employee has hired a vehicle for business purposes without including an indemnity to the employer. There is no cover in respect of damage to the vehicle or its contents and there is an exception relating to the possession of a driving license. It will be noted that there is a restriction on the liability of the insurers to pay compensation and that is restricted with a limit of indemnity under the policy.

Definitions There are a number of definitions, the most important of which relate to the business and it will be observed that there are some extensions in that the business will include the maintenance of premises, the provision of first aid and other emergency services, private work carried out by an employee for a director or senior executive and participation in exhibitions. In chapter four the question of personal injury and the inclusion of illness and or disease was discussed. This particular policy form specifically includes illness but as disease has already been accepted by the court as being personal injury then disease also would be covered. The definition of employee is basically the same as that to be found within an employers liability policy and nowadays goes beyond the person under the contract of service or apprenticeship. Territorial limits relating to the public liability policy not only includes cover within the United Kingdom, the Channel Islands and the Isle of Man, but also includes non manual work carried out during temporary visits by directors and employees. This can cause some difficulty in relation to the professional indemnity exclusion where advice is given in relation to the use of products the insured quite properly

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can argue that this is part of a sales service and not the provision of professional advice. As already indicated the interpretation will have to depend on the circumstances of each individual case.

Clauses To try and avoid the arguments which sometimes can arise in relation to claims in respect of nuisance arising under public liability policies a clause similar to that found in the specimen in the appendix will normally be found in public liability policies. It will be observed that liability in respect of pollution or contamination has to relate to a sudden identifiable unintended and unexpected incident. All pollution or contamination arising out of that one incident shall be deemed to have occurred at the time that the incident takes place. A definition of pollution is contained and this is a reasonably careful one. Insurers have been concerned particularly in relation to the effects of the Environment Act. In the United States insurers have had an enormous burden for clean up costs and the object of all public liability policies these days is to try and avoid any possibility of huge claims for contamination, especially of land, to arise.

Conditions The conditions to be found in a public liability policy are very similar to those which are found in all other policies. Here it will be observed that: •

There is a condition relating to the observance of policy terms.

•

The insured must give notice as soon as possible after the occurrence of an event likely to give rise to a claim.

•

The insurers have complete control of the claim and any proceedings including arbitration. It is to be assumed that for the future a condition such as this may well be amended to include mediation because of possible effects of the Woolf Recommendations.

•

The condition peculiar to public liability insurance relates to the limit of indemnity. The insurers can buy themselves out of their liability by paying the limit of indemnity or what remains, if any interim payments have been made, along with the amount of any legal costs incurred prior to the time of the payment and they can therefore absolve themselves from any further liability. There is some doubt about this question of legal costs particularly since in Canada it was held that the liability to

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provide legal costs indemnity was an obligation entirely separate from that relating to the provision of compensation of third parties. There is no English decision on that aspect and the present words used appear to be as good as one could hope. •

As with employers liability there is premium adjustment clause.

•

This is the normal contribution clause.

•

Unlike employers liability insurance there is to be found a cancellation clause.

•

There is a reasonable care clause the teeth of which are to be found really in a requirement that the insured should cause such defect or danger to be made good or remedied.

•

There is a problem here because it is often argued that if an accident occurs and the insured then does something to try and avoid it occurring again he is impliedly admitting liability. Any such remedial work is normally carried out in consultation with the insurer.

•

There is an Arbitration Clause, but that applies of course to disputes between insurer and insured and only in respect of sums payable under the policy.

The clauses relating to reasonable care and precautions are effective unlike the position in EL where statutory restraints apply.

Rating The premium for public liability insurance is based upon the trade. As already indicated the risk is regarded as a premises risk primarily and the underwriter will be concerned with the number of visitors and how they can be exposed to risk; there will be a loading factor if there is work away being carried out, more particularly if any process involving heat is involved. Indeed if welding or other forms of heat treatment including the use of blow lamps is employed by the insured then a special clause will normally be embodied requiring precautions to be taken when such heat process is in force. This will require again an additional loading on the premium. It is usual for the rate then to be applied to the wages normally per mille rather than as a rate per cent. Some of the major public liability risks such as very large contracting risks, supermarkets and the like will be rated on an entirely different basis. It will be

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more burning cost or possibly claims cost plus, than a rate applied on wages or turnover. Unfortunately because of the sheer size of some of these risks and the way in which premiums have escalated because of unfavourable claims experiences, a large number of these risks are being taken from the market and are becoming self insured at primary level, with reinsurance placed off-shore thereafter. This is a tendency which is likely to continue with a deteriorating claims experience and an inevitable increase in premiums.

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Products liability COMMON LAW LIABILITY CONTRACT S TAT U T O RY L I A B I L I T Y PRODUCTS LIABILITY INSURANCE POLICY COVER CLAIMS MADE LIMITS OF INDEMNITY GENERAL COMMENT L E G A L LY L I A B L E EXCEPTIONS TO PRODUCTS COVER

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Chapter 6: Products liability Earlier in this report the question of products liability was discussed briefly. It is a rapidly expanding field of liability insurance and with the development of a more litigious society it is feared that in this country we may see some of the excesses of American society.

Common law liability At common law the liability of the supplier of goods was an extremely limited one. The common law rule was in fact caveat emptor which translated means ‘let the buyer beware’. In other words it was for the buyer to satisfy himself that the goods were what he wanted, that they were free from defect and that they were suitable for the purpose required. Unless on the part of the seller there was fraud or concealment then the path of the purchaser was an extremely difficult one. In any event the only person who could sue the vendor was the purchaser because it was only between these two parties that there was any sort of relationship albeit a contractual one. That situation was changed following the case of Donoghue V Stephenson, 1933, when the House of Lords decided that where goods were supplied in the form in which they were to reach the ultimate consumer who had no opportunity of intermediary inspection then he would be liable to those persons who were injured because of defects in the goods even though there was no contractual relationship. Whilst the law was extended very considerably by this decision nevertheless there were still numerous instances where it was possible for a manufacturer or retailer to avoid responsibility, either because an inspection could not reveal the defect – for example in tinned goods – or because a claimant could not show that the defect existed when the goods left the premises of the manufacturer.

Contract Liability in contract between the supplier and the receiver of goods has always existed. If the goods were not up to standard or did not meet the specification then the supplier could be held liable for breach of contract. If injury was caused

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as a result of the defect in goods and the receiver was held liable then he could sue his supplier for indemnity and thus the so called chain of supply was established. Suppliers of goods have for many years sought to protect themselves against liability in respect of goods which might be defective by the inclusion of indemnity and/or hold harmless clauses in their contract. Such clauses will seek to provide that there is no liability upon the supplier in respect of any injury or damage arising from the supply of the goods and his sole liability will be the replacement of any goods shown to be defective. The indemnity clause may indicate that the supplier will not be liable in any circumstances for injury or damage caused as a result of his goods. The case of Arthur White V Tarmac, to which reference has already been made indicated that the court will allow such clauses to stand even if they are extremely onerous. The Unfair Contracts (Terms) Act sought to remedy any imbalance between parties – more particularly when one of them was a consumer acting in a private capacity. It was perceived that such a consumer would be at a disadvantage in dealing with a corporation particularly when in a monopoly situation, and therefore the Act indicated that any term in a contract which was unfair or where one party was the more dominant, would no longer be upheld by the courts. In general terms the Unfair Contracts (Terms) Act was meant to apply to personal liabilities but in some instances it has been extended to cover some business relationships. Nevertheless it must be remembered that this contractual relationship applies solely between vendor and purchaser.

Statutory liability The original Sale of Goods Act, 1893, was one of a set of Victorian statutes designed to codify and in some instances modify the common law. The Act indicated that if the purpose for which the goods were required was indicated and the goods were not fit for that purpose, then the consumer was given a right of action under the statute; equally if the goods were not of merchantable quality again a right was bestowed. The Act functioned reasonably well but was replaced by a new Sale of Goods Act passed in 1979 and this improved the position of the consumer somewhat more. The high point of consumer legislation was probably reached with the Consumer Protection Act, 1987, which was passed following the EU Directive on products. Whilst certain defences, notably the controversial one relating to the State of the Art are allowed the intention was to provide virtually strict liability in respect of the supply of products. A flood of claims was anticipated but has in fact not materialised to date.

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The controversial State of the Art Defence indicates that the manufacturer of goods will not be liable if he can show that the goods were manufactured in accordance with the best practice available at the particular time.

Products liability insurance Products liability insurance originally started as the insurance in respect of the supply of food and drink against the risk of food poisoning. It expanded into other fields and the necessity for insurance in respect of the supply of goods was demonstrated by the case of Donoghue V Stephenson – mentioned above – and the field expanded very considerably following that case.

Policy cover If reference is made to appendix two – chapter five, then it will be seen that section two of the policy there reproduced relates to products liability. What is covered is accidental death or accidental personal injury to any person other than an employer arising out of and in the course of the employment – the EL risk – occurring during within the territorial limits during currency and caused by products. The previous wordings used for many years were: •

Caused by defects in products. This is a much more restrictive wording in that it is necessary for the insured to show to the insurer that there was a defect in the product which caused the bodily harm and if the products were acting in accordance with their usual function then that would not be covered.

•

Caused by the action of products. Similar considerations apply to this form of wording when it has to be shown that the product reacted in some way with plaintiff to bring about the physical condition.

The policy also covers accidental loss of, or accidental damage to, material property. It is important to note the words ‘material property’ because that indicates that pure economic loss is not covered, but of course a plaintiff may not be able to recover in respect of economic loss alone in any event, in English law. It will be observed that in the operative clause the liability for compensation is restricted to the limit of indemnity.

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Claims made The wording of a products liability policy is on a so called ‘claims made’ basis. This can be contrasted with the causation or occurrence basis also to be found in liability insurance. Where the claims made basis is used then irrespective of when the product was made or the liability incurred if the claim is made during the currency of the policy then it will respond. There has been argument over consideration of when a claim is made. It is generally accepted that if the insured indicates to the insurer that a situation has arisen from which claims may arise during the currency of the policy then even if the claims are actually made after that date they will be covered. Not all insurers subscribe to this view and they take the view that if a formal claim is not made then the policy should not respond. Extensions to the policy wording have already been considered in looking at the general public liability wording. However, in the definitions it will be observed that the definition of products is a very wide one and actually includes the packaging, containers and labels. Claims have been received where erection instructions have been incorrect and structures or products have collapsed. Policies have been forced to respond because of the wording in respect of such incidents.

Limits of indemnity Limits of indemnity in respect of products liability are subject to the same considerations as those in respect of general liability and the latest decision where no less than £9.2M were awarded must make risk managers and others responsible for taking the decision as to the limit of indemnity extremely wary. It is not uncommon to find that a products liability policy will include not only an annual limit of indemnity but also a single accident limit. Such a limit is imposed to avoid insurers becoming over exposed because of one particular incident and this can very often occur if a large batch or a large number of a particular product each with a potential for a substantial claim are involved.

General comment It must be remembered that despite the intentions of the Consumer Protection Act, it is still necessary for liability to be established before a claimant can recover damages from the supplier or manufacturer of products. The pre-amble to the policy therefore operates when it says that the company will indemnify in respect of all sums which the insured shall become legally liable to pay.

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Legally liable These words have been held to mean that there should be judgement against an insured before an insurer can be forced into making a payment. This was established by the case of Post Office V Norwich Union, 1963, and reinforced by the House of Lords decision in Bradley V Eagle Star, 1989. However, it will be observed that the conditions entitle the insurer to take over the conduct of the claim that will be done normally as soon as notified.

Exceptions to products cover These are listed:

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•

There is no cover in respect of replacing or repairing or guaranteeing the products. Recall is also excluded because the cost of recall and the consequences can be very large. Insurance is available on a limited scale for products recall.

•

Aircraft and space craft products are also excluded as they are normally insured by an aviation insurer.

•

Products exported to US and Canada are excluded because of the vagaries of their judicial system – Jury trials and very high awards. Some insurers refer to direct export – where goods are passed on – even after use. This wording where direct is used may bring the policy into play.

•

The custody and control exception is necessary even because the insured may be adding his product to partially made items.

Professional negligence and professional indemnity DUTIES OF A PROFESSIONAL PERSON THE PROFESSIONS THE EMPLOYED PROFESSIONAL HOW PROFESSIONAL NEGLIGENCE CAN ARISE THE MEDICAL PROFESSION LAWYERS A C C O U N TA N T S ARCHITECTS OTHER PROFESSIONS PROFESSIONAL INDEMNITY INSURANCE POLICY COVER LIMITS OF INDEMNITY POLICY CONDITIONS EXTENSIONS OF COVER DIRECTORS AND OFFICERS LIABILITY DIRECTORS DUTIES AND RESPONSIBILITIES INSURANCE

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Chapter 7: Professional negligence and professional indemnity

The duties of a professional person A person who holds himself out as practising a particular profession must have sufficient skills to carry on the duties of the reasonable practitioner in the particular field. He is not bound to be the most skillful or learned member of his profession but he must profess the skill and knowledge of the standard practitioner. It is now recognised that it is one of the duties of the professional person to keep reasonably up to date and for this reason virtually all professions now require their practitioners to undergo some form of continuing professional development whilst they are in practice. This may consist of attendance of courses, lectures or the reading of various books and articles. The professional person does not however have to be a pioneer and he should not be held negligent because he refuses on reasonable grounds properly reached, having regard to his professional skill, to take a particular course of action. This is most important and was emphasised in the case of Stokes V GKN, 1968. This is particularly true where the course of action is one which can, particularly in the medical field, be said to be experimental.

The professions For hundreds of years there was a distinction drawn between what we regard as the professions and other occupations which were regarded as trades and in some professions it was not possible to study for entrance if one were to be engaged in trade. But our core professions have now expanded considerably and most self employed and employed persons regard themselves as being members of a profession rather than of a trade or an industry. It is a very important to realise that with the learned professions, particularly medicine and the law, high standards of professional competence have to be

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achieved both by examination and by vocational training. Other professions have their own methods of training and some of those now described as professions have a training consisting of vocational and practical experience rather than academic learning. It is a great pity that in this country what can only be described as snobbery has perpetuated this distinction.

The employed professional A significant number of qualified professional people now choose to use their professional skills as employees of corporations. Whereas in the past most professional persons practiced their skills as self employed practitioners, many now choose employment where they give advice on a particular field for their employers and in the case of employed lawyers they may in fact conduct litigation on their behalf. If the reforms being advocated by the Lord Chancellor are in fact implemented, it may well be that this will become a growing practice. Their status is precisely similar to that of other employed persons and their employer will be liable vicariously in respect of any acts of negligence which they commit. He is liable even if those acts are of a professional nature where the employer has neither the knowledge or the skill to question a decision which has been made. This was established in the case of Stokes v GKN, 1968. The employed person will be liable to his employer in respect of his negligent act and there is no legal bar – save in the terms of contract of employment – to prevent the employer from seeking reimbursement for any expenditure to which he has been put. Lister V Romford Ice Company, 1957; Janata Bank V Ali, 1983. There have been some recent cases where young solicitors employed by practices as assistants have been sued by their employers because the young solicitors have been entitled to personal indemnity under the terms of the solicitors indemnity fund.

How professional negligence can arise It is necessary to consider some of the professions and the way in which liability can arise therein.

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The medical profession It is necessary to consider whether the medical care given to an injured person who is making a claim against a policy holder has been to the required standard. An insurer may consider the question of proceedings against a negligent doctor or hospital where the injury has been worsened as a result of the medical treatment given. It is unusual for insurers to issue such proceedings but there will always be cases where it is necessary for the course of action to be considered. Policy holders in industry sometimes maintain medical services for the benefit of their own employees and in some cases for others and the employer of the doctor or nurses is liable vicariously if their employee either by omission or by commission causes the position of the patient to get worse. The employer will be liable for the acts of the professional person even of a professional nature, and this will be covered under the terms of the PL policy issued to the employer provided that the professional service is not being offered for a fee. It must be borne in mind that members of the medical profession are ordinarily covered by the Medical Defence Union, or the Medical Professional Society, and it is unusual for cover to be sought in the open market.

Lawyers A barrister cannot be sued in professional negligence by his client for his actions in Court, Rondell V Worsley, 1967. But it is likely that a barrister can be liable in respect of paperwork for example in giving opinions and settling proceedings, although there have been no decisions on the points specifically. Solicitors can and have been held liable in negligence for various matters. The negligence can arise from wrongful advice from making errors and conveyances and from failure to issue proceedings within a statutory time limit. Solicitors may now practice as advocates in various of the courts and it appears to be certain that the immunity given to barristers in practising the function of advocates will also extend to solicitors. It must be borne in mind however, that solicitors are required to become Members of Solicitors Indemnity Fund in respect of a primary layer of insurance and it is normally only for top up cover that this business will be on the market. Barristers despite their immunity in respect of Court action, are now commonly taking out professional indemnity insurance.

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Accountants Accountants can be held liable for carrying out duties improperly and the function of accountants has extended far beyond a mere audit of their clients books. They now set themselves up as independent management consultants and indeed in some instances as providing claims services to insurers so the actions that may be brought against them have extended.

Architects A large number of claims for professional negligence have been brought against architects in respect of defects found in buildings caused as the result of the defective design by the architects. Indeed at one stage, so common was such claims, that it was necessary for the rates to be increased very substantially.

Other professions Members of other professions are liable in negligence for exactly the same reason as outlined – they have failed to exercise the skill and judgement to be expected of the ordinary member of the profession. All professions have been the subject of such claims and in this regard, one of the reasons is the diminishing respect which the general public shows to members of the professions. This in part has been caused by the description of occupations other than those which are purely professional as being professions.

Professional indemnity insurance The market for professional indemnity insurance has always been a very specialised one but much premium has been withdrawn from the market by the practice of certain professions – already mentioned – of setting up their own insurers or indemnity funds. Whilst in comparison with the size of some of the claims which have been made in the professional negligence market these indemnity funds have a fairly low primary limit. Upper layers will normally take indemnities to quite a high amount and such other layers are to be found in the commercial market.

Policy cover There is no standard form in use, the sort of cover that is generally available will indemnify the insured against any claim for damages for breach for the professional duty which may be made against him during the period of insurance. Due to any

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negligent act, error or omission whenever or wherever the same was, or was alleged, to have been committed by the insured or their predecessors in business or any employee of the insured or their predecessors in business. The cover relates to claims for breach of professional duty. In the case of some of the quasi professional occupations to which reference has already been made it might be argued that there was a commercial service being provided rather than a true professional service and the words may need to be amended. As with products liability insurance the wording provides cover on a claims made basis and it does not matter whether the act of negligence took place during the currency of the policy or prior thereto. Because of the retrospective nature of the cover, obviously a proposal form will ask for details of any incident likely to give rise to a claim which is known to the insured. Whilst the cover is in respect of negligent acts or omissions there may be occasions when the claim is made because of dishonesty on the part of a principal or an employee and there is no cover under the policy for this type of incident. However, such cover can be bought in but again some information will be regarded as necessary as to the background of the principal and their staff. Finally the cover does apply to the predecessors of the current principals in the business. The extension of the policy to such cover may in fact cause difficulty in the investigation of such claims if previous principals and their employees have departed the firm. However, for the good name of the firm it is necessary for such cover to be given.

Limits of indemnity It is necessary for an adequate limit of indemnity to be selected although as already indicated the primary layer may be selected for the professional person. It is usual for the limit of indemnity to be on an annual basis rather than for any one claim. In addition to the limit of indemnity costs will also be covered, but in cases where upper layers only are provided, there will be some arrangement for sharing the costs with the primary layer. There is a tendency in some forms of liability insurance for some underwriters now to seek to include costs as forming part of the limit of indemnity. This can cause difficulty as already indicated, because it has been held on at least one occasion that that obligation was separate from the obligation to indemnify of itself.

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Policy conditions There are two special conditions to be considered particularly in relation to this category of insurance. The first relates to the notification of any claim made against the professional or the receipt of notice that the insured may be held responsible for the result of any breach of professional duty. Most professionals these days will notify anything which they think is likely to give rise to a claim even before any notification is made to them, on the basis that it is better to be safe than sorry. The second condition in which it is necessary to consider separately is the conduct and control condition. Here the insurer is given conduct and control of any claim and the insurer may defend or settle any claim unless a Queens Counsel mutually agreed advises that the proceedings be contested. The so called QC clause will normally be worded in that form so as to avoid complications because a possible conflict of interest can arise between the insured and the insurer. There may be a condition in the policy which requires the insured to notify any incident likely to give rise to a claim even before any notification is made. Comment has already been made upon this aspect and most insurers are now prepared to recognise that notification of such incidents during the currency of the policy as the notification of a claim when so ever it shall occur.

Extensions of cover It may be possible for the professional to include certain other risks, such as libel or slander because although these may depend on negligence sometimes they may not and they are of course separate torts in their own right. The question of the dishonesty of employees has already been considered and this will normally cover employees but not principals and some professional organisations do have indemnity funds which will deal with claims from the clients of such dishonest principals. There may be liability in respect of incoming or outgoing partners and extensions will cover such liabilities for work conducted in a previous practice and for work whilst the outgoing partner was a member of the practice. Many professionals will keep a policy in force long after their retirement on the basis that they may receive claims during a run off period.

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The question of subrogation against negligent employees who may be entitled to personal indemnities has already been considered. It is unusual for insurers even to contemplate such actions against an employee because of the terms of the Market Agreement which was concluded following the case of Lister V Romford Ice Company – already mentioned – to avoid the assets of an employee being put in hazard. All in all professional indemnity insurance is for a very limited market and premiums have become very much higher, both because of the withdrawal of the premium from the market in some professions at the primary level and because of the deteriorating claims experience.

Directors and officers liability Allied to the subject of professional indemnity can be regarded as the question of directors and officers liability.

Directors duties and responsibilities Directors are officers of the company and they are also agents of the company because they are regarded as self employed persons. Unless they also have a contract of service they are not regarded as employees of the company. Directors have certain duties to administer and run the affairs of the company but they do not have to display any particular degree of skill and they can delegate to managers and other officials any duties in accordance with the Articles of Association. The directors owe duties to the company to exhibit the skill and care in performance of their duties as directors and non executive directors have also to display the same sort of skill. Directors are not normally responsible for errors of judgement but they have to exercise proper judgement and skill in the first instance and if matters are drawn to their attention and they acquiesce in a continuation of the status quo, then they may be liable. Directors acting as agents with proper authority incur no personal responsibility but if they make a contract which the company does not honour, they may be liable for breach of authority. They may also have a personal liability if the company is sued in respect of normal tortious liability, which has already been discussed.

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Insurance Cover may be available to protect the directors and officers in their personal capacity in circumstances where they cannot claim an indemnity from the company. Equally the company will be indemnified in respect of costs and expenses they may have incurred in defending a director or officer under the terms of the Companies Act 1985. The policy again is on a claims made basis.

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Chapter 8: Claims – part one The public liability account is the most volatile in the portfolio of a general insurer. It is volatile because it covers a very wide spectrum of risks ranging from the small single man business which will generally produce small simple claims to the large contracting wholesaling or retailing risk, which can produce claims from the very small to the very large. The twin questions of estimating and reserving will be discussed later, but as can be seen from the widespread nature of the account, problems can be experienced in these aspects.

Liability cases As with all liability claims under whatever category of policy they arise, there are two questions which have to be answered rather than the one which applies in material damage policies: •

Is the insurer liable under the policy? It is necessary for some checks which are purely mechanical and routine to be carried out to determine whether the policy is operative. Has the premium been paid or is it the subject of special accounting arrangements with the insured and/or their brokers? Does the claim as reported fall within the policy period. Are there any endorsements applied to the policy which might disallow the claim? There may well be a check against the proposal form or very initial enquiries may reveal that there has been possible concealment – and this embraces both non-disclosure and misrepresentation – at the time that the policy came into force. If this is so not only will the policy not respond to the claim but the policy may also be declared void ab initio.

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Is the insured liable to the third party? This will be a question of fact or in rare cases a question of law. It is necessary for all the facts to be ascertained and then for those facts to be considered in the light of the law and the duty owed by the insured to the third party and to consider whether any defences are possible to the claim.

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There is then when those two questions have been answered yet a third. How much will the claim cost? It has to be remembered that if the claim is going to be contested then there is an additional amount to be considered in respect of costs.

Concealment The question of concealment which as already indicated embraces both non disclosure and/or misrepresentation has already been considered briefly. It is rare in considering liability claims under this category of policy to find that there has been non disclosure and/or misrepresentation. It may be that an innocent error has been made which is capable of explanation and that will be considered by the insurer. However, it is possible for there to be cases of misrepresentation either by the insurer or by his broker as in the case of A & B Painters V Economic Anr, 1983 where brokers distorted a claims experience provided by a previous insurer in order to obtain a lower rate. Insurers were held entitled to avoid the policy but the brokers were held liable to indemnify their clients. With large public liability risks where claims are constantly being turned over, if a non disclosure or even a misrepresentation were to be discovered it is open to the insurer as with all cases to avoid or affirm the policy. In some cases where a number of claims have already been disposed of, and it would be necessary for there to be a considerable transfer of funds by way of premium and reimbursement of claims already paid, then the insurer may declare the policy void – which he must do to maintain his legal position – and then negotiate a compromise with the insured whereby possibly only those cases effected by the non disclosure or misrepresentation will be disallowed. That is however a matter of negotiation and it must be emphasised that in law the insurer can only affirm or deny a policy. Negotiation must of necessity go on entirely separately.

Investigation Once it has been established that the policy is operative and that therefore the insurer must indemnify his policy holder then it is necessary for the facts surrounding the incident to be ascertained. Traditionally insurers utilise their own staff to determine questions of liability and for substantial property damage cases they use the services of adjusters to determine quantum. With the reorganisation of insurers and their claims departments, practice has in many instances changed and the question of outsourcing has to be considered and will be looked at later.

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However, as both staff and outsource resources will use the same methods to ascertain the facts they will be considered as one. It will be necessary for a visit to be paid to the scene. It may be that the insured is a contractor on that scene and it will be necessary for permission to be sought from the owner and/or the main contractor before a representative can attend. It is the insureds responsibility to arrange for this in accordance with the policy conditions which will require him to give all co-operation necessary to the insurer. Once on site, it is for the investigator to determine exactly what happened and whether any safety regulations or statutory requirements have been breached. If the insured is related to other parties by contract then it is necessary for the contract documents to be obtained and to be scrutinised carefully. Copies should be taken so that they are available to the insurer at all times. As well as the contract documents it is essential in cases involving building or construction works that a copy of the Bill of Quantities be obtained and perused. Whilst the actual cost of individual items is of little concern to insurers the question of conditions ancillary to the main contract are very important indeed as occasionally such conditions are deemed to have been incorporated in the main contract and to have applied obligations upon the insured, a breach of which can render him liable. AMF International V Magnet Bowling & Anr, 1968. If there are witnesses they must be interviewed and statements taken from them. It has to be borne in mind that such statements may well for the future be the only evidence in chief from a witness which may be admitted. Whilst the taking of statements has always been a specialised art it now becomes even more important that they are comprehensive and that they present a true picture of what the witness saw or knew. It must be remembered also that in certain circumstances hearsay evidence can be admitted. If for any reason the witness will not give a statement then it can be extremely helpful if he will sign a declaration to the effect that he is not willing to make a statement giving, if possible, his reasons.

Consideration of the facts Once the facts have been ascertained and the necessary documentation obtained then it is necessary for those facts to be considered in the light of the law and any defences which may be available. Thus, the facts may disclose quite clearly that there has been a breach of safety regulations on the part of the insured. If he is a contractor on a site controlled

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by a main contractor however, there may be some statutory responsibility resting upon the main contractor or the owner of the site of which they cannot divest themselves and it is necessary for this to be explored in the light of the statutory provisions and with conditions in the contracts. If there are other parties who appear to be involved then it is wise for the insurer immediately to inform them and to seek to claim indemnity on behalf of his policy holder. If there are no other parties involved and the insured is clearly responsible then the quicker settlement negotiations get under way the better.

Contractual conditions This report has already considered contractual conditions but it is necessary for them to be scrutinised very carefully to see whether, if there is an indemnity clause, the circumstances that fall within it or if it is a hold harmless clause again that what has happened is not out with that condition. It must be remembered that because indemnity clauses and hold harmless conditions are in the nature of penalty clauses since they transfer or absolve from a responsibility they will be construed strictly against the maker. In cases where there is no formal written contract but an exchange of documents each of which bears the parties own contractual conditions, it will be necessary to consider two things: •

Whose document was last in point of time.

•

Was there a Course of Conduct between the parties which would lead the Court to believe that by that Course of Conduct both parties accepted upon whom contractual responsibility fell.

It cannot be emphasised too strongly that in considering public liability claims then any contractual relationship between parties is of the utmost importance and any investigation must be directed towards the discovery of that contractual relationship, its implications and its effects. The determination of such issues can in fact involve the time of the courts over a very long period and can result in enormous costs being paid by insurers. The litigation in the Piper Alpha Litigation went on for many months and resulted in several million pounds worth of costs being incurred to determine whether a hold harmless clause was effective or not.

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The decision as to liability Once the facts are all in and the law has been considered then it will be necessary for a decision as to liability to be made. In personal injury cases which will be subject to the Woolf recommendations, such a decision will have in any event to be taken within 90 days by the terms of the pre-action protocol which has been drafted and to which all insurers will be expected to subscribe. Failure to comply with the terms of the pre-action protocol which will be considered later in more detail will result in penalties either by way of costs or by swingeing rates of interest being applied. Once a decision has been taken then it must be communicated to the third party. If it is a decision to pay then it is wise for the initial letter not formally to admit liability but to indicate that the insurers are prepared to negotiate a settlement which is without prejudice to liability. This avoids the formality of having to go to the insured to ask for his consent to admit liability (see below). If the decision to repudiate is taken then that must at once be communicated to the third party giving detailed reasons why that decision has been reached. If there are any documents which are applicable it will give an explanation of the decision which must also be attached. Up until now it has been possible for defendants to say only that liability is repudiated but now they must give the detailed reasons for that decision in the hope that it will prevent unnecessary litigation.

Admissions of liability In the case of Groom V Crocker, 1937 the Court held that to admit liability without the consent of a person was a libel. For that reason before any admission of liability is given insurers now obtain the consent of their policy holder and this may conveniently be done by the submission of a simple form. The case of Gale V Superdrug Stores Ltd, 1996, decided that it was open to a defendant to withdraw an admission of liability unless their was clear and cogent evidence of prejudice to the plaintiff before the court could be persuaded to restrain the privilege which every litigant enjoyed to change his mind. This decision has totally overturned the traditional view that once an admission of liability was made it could not be withdrawn.

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Claims – part two DEFENCES CONTRIBUTORY NEGLIGENCE VOLENTI NON FIT INJURIA FORESEEABILITY ACT OF GOD L I M I TAT I O N DENIAL Q U E S T I O N S O F L AW A N D Q U E S T I O N S O F FA C T PROPERTY DAMAGE CLAIMS PERSONAL INJURY CLAIMS THE RIGHT DOCTOR VA L U AT I O N O F P E R S O N A L I N J U RY C L A I M S SETTLEMENT OFFERS DISCHARGES LONG TERM CLAIMS OUTSOURCING

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Chapter 9: Claims – part two The mere fact that a claim has been made does not of course mean automatically that the insured is liable. It is true, as already indicated, that it becomes more difficult to defend third party claims, particularly those for personal injury, but nevertheless a defendant is still able successfully to defend a case if he is able to establish by evidence that he is not legally liable.

Defences The formal defences to an action have been considered in chapter three. Of those defences, probably the most important of all to defendants is that of contributory negligence.

Contributory negligence Here the defendant endeavours to show that the third party is partially responsible himself for the injury he has sustained or the damage which has occurred. It is by many academics considered that this is not truly a defence but a mitigating factor, but insurers whatever the true academic view accept that it is of considerable importance to them. There are other defences which are important for consideration as well.

Volenti non fit injuria Whilst to a large extent it was thought that this defence was obsolete there have been one or two cases in the recent past where the courts have been willing to find that a plaintiff had volunteered to accept a risk. It is probably going to be difficult to show this in an employers liability claim but certainly in public liability matters where that same close relationship is not involved the defence may have some success.

Foreseeability This is very important because if it can be shown that the consequences of his act were not foreseeable to the reasonable person, then the defence will succeed.

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However, the courts have been taking the view that foreseeability has needed to be widened and the Law Commission have gone even further in some of their reports. In that on the subject of psychiatric injury then proximity to danger is not a necessary component. Fortunately for insurers the House of Lords in the latest of the Hillsborough cases to be reported, Frost & Ors V Chief Constable of South Yorkshire & Ors, 1998, have decided that to be a primary victim it is necessary to be within the zone of physical as opposed to psychiatric harm. The police officers were not so situated and could not recover. This is bringing a breath of sanity into what was becoming a nightmare scenario for insurers because it was confidently asserted that if a driver was required by his employer to pass an accident black spot regularly and there saw an accident with horrific consequences and thus became subject to PTSD he would be able to bring action against his employer on the basis that he was required to engage in an unsafe system of work. That could leach over into the field of public liability and motor insurance and this House of Lords decision has for the time being apparently altered any extension of this branch of the law.

Act of God This is of particular importance in cases of material damage where, for example, storm conditions have caused trees or property to be damaged and in the course of sustaining that damage other property has been damaged or injury has been sustained. It is a question of ensuring that there is evidence to show that the property was well maintained and regularly inspected and that the trees were subject to forestry management or the attention of a tree surgeon at regular intervals. Only then will his defence be successful.

Limitation Limitation has never loomed large in the defence of public liability claims because ordinarily a claim is made against the insured fairly quickly after an incident has occurred which is likely to give rise to a claim. However things are changing because the public liability policy is becoming more involved with cases of disease, either from industry or from contamination. Such cases are insidious and can occur over a period of many years. To determine whether a policy should respond it is necessary to consider the policy wording and in particular whether the ABI recommended pollution wording has been included in the policy. This wording excludes liability in respect of pollution or contamination other than caused by a sudden identifiable, unintended or unexpected incident which takes place in its entirety at a specific time and place.

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Irrespective of that, if the policy does respond then it will be necessary to consider when the third party sustained the disease of which he complains and whether that claim is governed by the terms of the limitation acts.

Denial The simple defence is that the insured did not do it or that the accident never occurred or that the third party never sustained the injury or damage. These may on the face of it appear simple but they can be very difficult to prove and in particular the last that the injury or damage never occurred. That does not necessarily mean that there is attempted fraud on the part of the third party but what it may mean is that any accident was not causative of the damage or injury.

Questions of law and questions of fact Determining whether there is a liability upon the insured and the facts as ascertained must be applied to the law as has been seen in the previous chapter. It is sometimes difficult to consider questions of fact alone, but in general terms it can be said that the majority of claims are lost or won on questions of fact rather than questions of law. Questions of law as such do not arise terribly often, but when they do they can be of extreme importance, and if an insurer decides to rely upon a question of fact it must be with the possibility in mind that the matter may end up in the House of Lords to establish the point.

Property damage claims Property damage claims can range from the very small case, where for instance a plumber drops a spanner into a lavatory bowl and the facts and the cost are clear beyond any dispute then the claim is one to be settled quickly. To the very large claim for damage to a building which may cost many millions of pounds to restore. In considering the first claim the insurers would require an estimate of the cost of repair and will pay the claim on the basis of that estimate. In the case of the second claim the same basic principle applies although an investigation of the facts may be much more detailed and involve the preparation of reports by a number of experts including forensic scientists. As already indicated adjusters may be used to consider questions of quantum. It will be their responsibility to liaise with the third parties representatives to have structural

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repair schemes obtained, so that costs can be vetted and to consider in conjunction with their representatives how the third parties loss may be mitigated by the occupation of alternative premises and the like. Many of these very large claims are the subject of subrogated actions by fire insurers or other material damage insurers. It may be that clauses in a policy may entitle the third party to recover more from his insurers – by for example the application of the Local Authorities Clause, than in law. It will be necessary for those investigating quantum to have regard to these aspects and to make sure than any subrogated claim is only for an amount which can be recovered in law.

Personal injury claims The number of personal injury claims involved in public liability matters has for many years been only a small proportion of the total number of PL claims reported, however, some of those claims can be extremely large and nowadays each personal injury claim merits investigation because it has the potential to become a disaster. With awards now going up to £9.2M caution must be exhibited in the handling of personal injury claims. Once the facts have been ascertained it may be wise to obtain a medical report and under the terms of the Woolf recommendations this report should be a joint report by agreement between the two parties. If the report is not acceptable then it is still open to the insurer to obtain a report of their own although a copy will inevitably have to be passed to the third party. Again the question of experts will for the future be difficult, particularly if the claim is under £15,000 and may fall within the new fast track procedures. Here it is unlikely that medical evidence or other expert opinion will be allowed to give oral evidence. The same difficulties may be experienced in the higher cases. However, in preparing the case insurers will want to obtain the evidence that they consider they need.

The right doctor The insurers will want to make sure that any doctor who is engaged by them is an expert in the field and can give them a report which is likely to assist their case. One way of doing this is to submit any report received from the plaintiff

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to a doctor of choice asking him whether he considers that he can help. It has to be borne in mind that a claim made by a third party twelve months after the event may have come in so late because his solicitors have been shopping around for evidence which will further their cause. Insurers under the terms of the preaction protocol will have but six weeks and thereafter if litigation ensues a strict timetable will have to be involved. It is therefore terribly important that the right experts be engaged.

Valuation of personal injury claims Whilst the courts are now seeking to impose scientific rules the valuation of personal injury claims is an art rather than a science. The starting point is of course the period of disability and the residual effects of any injury that a claimant who has lost a limb will deserve to be compensated for the loss of the limb as well as for the period of time that he was disabled. There will be an award in respect of the residual disability and any disadvantage to which he is exposed on the labour market. In cases of paralysis and/or brain damage, it is necessary to consider the continuing loss of earnings – if any – and the cost of future care. Reports commissioned by the ABI on the subject of constant care indicate that where awards are made they are not necessarily expended upon the care which it was anticipated would be needed. It is necessary for very careful enquiries to be made where the injury is of great severity although such enquiries must be made discretely and humanely and should not involve the sort of calculation which was recently described by a court, where representatives of an insurer had sought to reduce an award because a lady who had lost both legs would not require tights for the future. Such conduct is likely only to antagonise a court not to bring about a greater reward. In some cases a forensic accountant may be useful but following the decision in Wells V Wells, 1998, which has increased the scope for the making of awards enormously, the services of an actuary may be even better.

Settlement If the case is one to be settled then it will be necessary for the insurer to consider the sort of offer which is to be made. The first thing to be determined is whether liability should be admitted or whether the offer of settlement should be made under cover of a letter indicating that an offer would be made without prejudice.

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The difficulties involved in the admission of liability have been outlined above and it must always be borne in mind that the consent of the insured in writing must be obtained before any admission of liability is made.

Offers When an offer is to be made then in the case of a personal injury claim an offer will be based on the injury and its consequences. Clearly the offer must include any claim for loss of earnings and any future losses. These subjects are discussed more fully in the next chapter. It can be said however that the old style negotiation where the insurer starts low and the opposition start high, with the object of meeting somewhere in-between has long since past, and any offer which is made must be realistic. In the case of a property damage claim, then any offer of settlement will be on the basis of estimates or in the case of large claims for building damage on reconstruction schemes and must include claims for consequential losses. As already indicated it is likely that the claim will be on a subrogated basis from another insurer and there may be scope for discussion between the two insurers, without necessarily the involvement of lawyers, with the incurrence of substantial legal costs which causes money to leave the market.

Discharges It is now not common for insurers to obtain a discharge because of the administrative difficulty in obtaining a signature to a discharge and the fact that the payment of the cheque into the claimants bank account will act as a discharge of his claim. It is however common prudence to ensure that any letter that is sent enclosing the cheque indicates that the payment is made in full and final settlement of all claims arising out of the particular incident. When litigation has been commenced it may be prudent for a payment into court to be made, but again this aspect is discussed in more detail in the next chapter.

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Long term claims The long term claims with which insurers are concerned, as already indicated,will include claims for disease and/or pollution where they are covered under the policy. Once liability has been established and the insurer is satisfied that the policy operates then exactly the same considerations apply as to other claims. It may be that insurers have changed over the period during which the condition arose. In employers liability cases there are sharing arrangements in operation between insurers based upon the time of exposure. These are common throughout the market although it is unusual to find a formal agreement applying across a particular category of business. More usually the arrangement being in respect of a particular risk. Such arrangements are still not the norm in public liability claims because of the differential in the wordings. It may be difficult to establish precisely the amount of damage which occurred during the currency of a particular public liability policy. It may be that if insurers do agree that particular aspects of injury or damage were caused during the currency of their policy then a calculation and a sharing arrangement can be reached in respect of a particular claim and this may again avoid the incurrence of heavy legal costs.

Outsourcing In an attempt to contain expense ratios and to maintain a service in a competitive market, many insurers have considered and some have adopted a practice of outsourcing their claims. Outsourcing simply means that an outside agency is commissioned and employed to deal with claims on behalf of an insurer although up to what stage will depend upon the contract between the insurer and the outsource. Thus, outsourcing may take a number of forms:

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•

All claims will be notified not to the insurer but by policy instruction to the outsource and the outsource will then handle the claim.

•

Handling the claim may take place up to a particular limitation of value or the mandate may exclude personal injury or certain other types of case.

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The outsource may be given authority to deal with claims up to the outset of litigation at which stage the insurer will wish to become involved.

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The outsource will be given complete authority to deal with claims up to the retention level (discussed in chapter twelve) at which stage reinsurers may wish to become involved.

The principal outsources in use are adjusters and solicitors. Adjusters have tended over the last 5 - 7 years to set up their own liability departments, staffed in many instances by insurance personnel and they now offer a service in which not only will they investigate quantum but they will also investigate and seek to determine liability both in personal injury and property damage cases. Solicitors are also offering their services in the handling of claims from the ground up as distinct from cases involving litigation. In the motor field solicitors had for some years been handling small recovery cases for insurers and this practice extended into the handling of claims of all types but principally those with a liability content. Solicitors consider themselves uniquely qualified to deal with liability cases and as officers of the Court they are entitled to represent their nominal and insurer clients even while litigation is under way, which means that cases do not necessarily have to change hands. There are three problems which can be seen to arise: •

The interests of the outsource and the insurer may not necessarily coincide. This is purely and simply because the business interests of the parties involved are not necessarily identical. Business interest of the insurer is the disposition of claims as quickly and as economically as possible and this may involve settlement repudiation and / or litigation. The business of solicitors is truly that of litigation and that of adjusters the settlement of claims without necessarily involvement in litigation. It has to be said that some adjusters to aid in the decisions on liability have employed solicitors.

•

Cost. Whilst insurers have been able to cut their expense ratio the actual cost of the claims account has been debited with these extra expenses and in some instances fees have approached or are coming close to approaching the savings which have been made by the slimming down of claims departments.

•

Claims cost. Because the outsource does not have the same involvement with the monetary consequences of the actions as did insurance staff, there is therefore the possibility of increasing claims ratios and perusal of some of the DTI accounts of insurers indicates that in some instances claims ratios are increasing.

It is an undoubted fact that outsourcing has advantages for insurers but on the debit side there are disadvantages in that the insurer loses direct control of his claims. If the two interests can be reconciled then outsourcing can have much to

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offer, but it does require some expert claims people on the part of the insurer to engage in a monitoring and, where necessary, controlling function because few insurers could allow the outsource to deal with their heaviest of claims unsupervised.

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Special risks – litigation LOCAL AUTHORITIES POLICE AUTHORITIES H O S P I TA L S L I T I G AT I O N N E G O T I AT I O N A R B I T R AT I O N L I T I G AT I O N OUTLINE OF CURRENT PROCEDURE RECENT CHANGES P AY M E N T S I N T O C O U R T SMALL CLAIMS COURT R E C O M M E N D AT I O N S O F L O R D W O O L F THE NEW COURTS EXPERT EVIDENCE P AY M E N T S I N T O C O U R T A N D O F F E R S T O S E T T L E PRE-ACTION PROTOCOL A D O P T I O N O F R E C O M M E N D AT I O N S CONDITIONAL FEES LEGAL AID

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Chapter 10: Special risks – litigation As has already been said the liability account ranges across risks which vary in size from the very small to some which are very large indeed. It is necessary to consider the ramifications and special matters which can arise from some of these very large risks so that any special considerations relating to claims can be born in mind.

Local authorities Of all the risks insured under public liability policies the Local Authority is probably the largest and most complex. The activities of local authorities these days range from the quasi-industrial throughout the whole spectrum to professional negligence and failure in the duty of care owed to those who cannot exercise it for themselves such as children and young persons and the mentally enfeebled. Thus the cover afforded by such a policy must be very wide. As well as covering the ordinary premises risks the underwriter must have regard to the fact that with civic buildings the public will be visiting various areas on a constant basis. Indeed some areas of civic buildings may be rented or hired out for activities such as dances, balls, dinners and the like. The quasi-industrial plants such as waste disposal depots may again encourage the public to visit such places to get rid of certain aspects of their rubbish and thus keep the cost of collection as low as possible. In relation to the collection of rubbish one of the most common risks and sources of claims are the collection by Council employed persons of items left adjacent to rubbish collection areas and as already indicated such a risk can result in claims quite frequently. Council owned car parks again are a frequent source of claim, both from the automatic barriers damaging vehicles passing through to claims for damage to paintwork to motor vehicles where water has penetrated concrete floors causing drips akin to acidic rain to fall on the vehicles below. The matter does not stop there because as highway authorities under the terms of the Highways Act local authorities may be responsible for gritting and sanding when adverse weather conditions are prevalent. That duty appears to have been extended by the very recent case of Goodes V East Sussex County Council, 1998, where a highway authority was held liable for failing to act expeditiously to prevent ice forming on the surface of a road. The duty appears to have been

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extended considerably because the claimant was driving a motor vehicle overtaking other vehicles when it was alleged that the vehicle skidded on ice and left the road. The roads were to be pre-salted at 5.30am, the court held that the re-salting should have started by 4am. One of the Lords Justices of Appeal dissented and it seems possible that there will be an appeal. Local authorities maintain homes for the young and mentally disturbed and also provide ‘care in the community’. There have been a number of cases ranging from the notorious pin-down episodes to cases where mentally disturbed persons have been released from secure accommodation and have attacked other members of the public. In such cases local authorities are prime targets by those who have allegedly undergone trauma as a result of their actions or failure to act. Senior officials of the local authority such as the Chief Executive, the Treasurer and the like may be accused of professional negligence in the performance of their duties and policies will normally be endorsed to cover such liabilities. In some south coast towns local authorities even engage in the production of goods such as ice-cream with a very substantial risk of food poisoning. All of these matters are normally covered under the terms of the local authority policy. There is a very specialised market although local authorities owe a duty to obtain tenders for the best rates from a number of insurers. Risks have been known to change because of very slight alterations in the rate.

Police authorities Police authorities were at one time covered under the terms of the PL policy issued to a local authority. Now the local authority boundaries are no longer co-terminous with those of police authorities policies are generally issued to the police on a separate basis. The special risks involved were normally regarded as those of assault, wrongful arrest and false imprisonment. Cover was granted under such policies although the circumstances in which assault was covered might have been tempered by the fact that it was the police authority rather than the individual constable who was being indemnified. Cases of gratuitous violence are criminal acts and whilst on the authority of Bransby-Williams V Baltic, 1922, the consequences of criminal acts can be insured, to allow for an innocent party to recover compensation, it is still unusual for the consequences of criminal actions to be covered. However, these matters pale into insignificance when the Hillsborough disaster occurred. Here claims were made not only by those who were themselves injured

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or by the families of those killed in the disaster but by others who claimed that they had been shocked and distressed and suffered other psychological harm as a result of the sights which they saw. The House of Lords imposed some guidelines in the case of Alcock V Chief Constable of South Yorkshire, 1992 by indicating there must be a relationship or proximity between Plaintiff and Defendant indicating that the category of plaintiffs eligible for claim was based upon ties of love and affection and where it could be demonstrated that the love and affection for the victim was comparable to that of the normal parent, spouse or child then damages would be recoverable even if the relationship was a more remote one. There must be a recognisable psychiatric injury: it is not sufficient merely to refer to post traumatic stress disorder. Such cases are discussed in more detail in the next chapter but it can be seen that the categories of cases in which police authorities can be concerned appears to have been widened considerably. Again such risks are underwritten in a very specialised market. One of the largest categories of risk to be insured is that of the chain of Supermarket stores. Such national chains with a very large number of stores present very considerable risks because people are positively encouraged to visit the stores and it is an essential that there be a proper system of cleaning and good housekeeping because there are many cases of slipping and tripping because of spillages. It is usual for the supermarket to be given authority to settle small claims up to say £50 and indeed there may be an excess up to say £250 to provide for such small claims. The risks of wrongful arrest and false imprisonment have to be covered because security guards and store detectives may wrongly consider that a customer has been shoplifting and detain a suspect.

Hospitals The opening of new private hospitals has increased the number of such risks on the market because National Health Service hospitals are normally the subject of indemnity from the Department of Health. The risks are many and varied and it must be born in mind that the personal injury factor is increased because those who come to hospitals may already be injured or disabled in some way and the effects of an injury can be considerably increased. There are risks of slipping and tripping along with the professional risks of the medical staff. Where the medical staff are employees then the hospital can be liable vicariously for their actions on the basis of Stokes V GKN. It must be born in mind that not only doctors but also nurses are normally entitled to a personal professional indemnity from insurances arranged by their professional bodies. It

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would be unusual for a hospital however to seek indemnity from such persons and insurers would be precluded from so doing without prior references to the ABI on the basis of the Market Agreements concluded following Lister V Romford Ice Company. These are examples of some of the largest risks insured within the public liability department. The premiums generated can be very substantial indeed as can the claims. It is usual to find that there is a deductible and if the deductible is substantial then the insurer may be asked to handle claims in exchange for a surcharge or a fee per claim. Unhappily a substantial part of the premium is leaving the market because of the propensity for such risks to go self insured at least at the primary level. Again other bodies such as Universities have formed their own mutual company which again means that the premium available to the general market from risks of this nature is declining.

Litigation Where disputes cannot be resolved by negotiation then the recourse of the parties must be to go to some independent body which will provide a decision for them. Normally this is through the Law Courts because of the fact that they have the backing of the State and are in a position to impose sanctions if their orders are not obeyed. For many years insurers have sought to dispose of claims by negotiation and when that fails, by arbitration. Now the process of mediation is not only being advocated but in fact will be to some extent imposed, as the result of the reform to be introduced in 1999 by the Lord Chancellor.

Negotiation A very high proportion of third party claims is disposed of by negotiation. This involves discussion between the insurers and those representing the third party or in some instances with the third party personally. If that should occur then care must be taken that the third party is in fact informed of his right to have legal representation and that no advantage should be taken or be seen to be taken by the insurer or his representative. In actual fact about 92% of third party claims over the whole spectrum of insurers are concluded by negotiation, in some instances after legal proceedings have been commenced.

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Arbitration This occurs in a more informal setting where the parties agree that a person nominated by them – normally a lawyer or in some instances a more specialised person who has some professional knowledge of the nature of the dispute, e.g. a surveyor in a valuation dispute. Essentially arbitration is best suited to disputes between insurer and insured rather than those between insurer and third parties. The original attraction to insurers was the absence of publicity but over the years the publicity factor seems to have become of less importance and indeed the results of arbitrations quickly become known, and the rules which have developed have become almost as rigid as those which determine the procedure in courts of law. Except in specialised building and contracting disputes arbitration is not the most favoured method of dealing with matters, and in any event the arbitration clause under the policy provides that it is only in matters of amount – liability otherwise having been agreed – that the arbitration clause will apply.

Litigation It is important that those handling claims have an outline knowledge of the legal procedure which is involved in any case which goes to litigation. Litigation normally ensues when the insurer and the claimant are unable to agree either on liability, its apportionment or the value of the claim. There are cases where a dispute will arise because insurers are not prepared to agree the costs which have been incurred in pursuit of the claim.

Outline of current procedure At present proceedings can be commenced in either the High Court or the County Court. The latter are empowered to hear cases up to a value of £50,000 although their jurisdiction may be extended. In the High Court there is no financial limit as to what a judge might award. If the case is commenced in the High Court when it was clear from the outset that its proper home was the County Court then there will be penalties by way of cost. In the High Court proceedings are commenced by the issue of a Writ and the Writ should be accompanied by the Statement of Claim in which the plaintiff gives details of what has occurred, the allegations of why he considered the defendant to be at fault, gives details of the special damages incurred and asks for damages. (The

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subject of damages is discussed in the next chapter.) It is not correct to say that a plaintiff will sue for a fixed sum in damages. He is not allowed to do this unless the case is one for damage to property when the sum will be fixed although it is usual to find that there is a claim for damages at large as well. In Scotland, however, the claim is for a liquidated sum. Until recently it was sufficient for the defendant merely to deny all of the allegations made by the plaintiff but now it is possible for the plaintiff to go before the Court saying the defence does not disclose any reasonable grounds for defending the claim. Therefore it behoves the defendant to set out the reasons why he does not consider himself liable, in detail. There may be some other pleadings which ask for Further and Better Particulars of either the plaintiffs allegation or the defendants arguments in defence. There may even be a request for interrogatories which are a series of questions administered by the leave of the court to which written answers are given. Directions are now given automatically and will require the exchange of documents, the submission of medical reports and copies of witness statements. The action will then be set down normally by the plaintiff and come on for trial. A trial will allow the plaintiff to open the case and call his evidence. The defendants lawyer then calls his evidence but if he decides not to call any at all, he is entitled to the last word in argument. If he does call evidence then it is the plaintiffs lawyer who concludes the case. Evidence is given verbally and is obtained by questions and is the subject of cross examination by the other side. At the end of the proceedings judgement will be given either for the plaintiff or the defendant perhaps on the day or perhaps at some later date. In the County Court the proceedings tend to be a little less formal, but nevertheless follow mainly the outline given.

Recent changes The previous Lord Chief Justice issued a practice direction in 1995 which went a good way to establishing what has been called Paper Case, in that it was necessary for each side to provide for the court a skeleton argument indicating the issues and the points on which they were going to rely. The object was to lessen delay and speed up the legal process.

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Payments into court It is very important for the defendant to remember the payment into court. Where he has decided either that there is liability or that it is worthwhile trying to buy off the case then at any time he is entitled to make a payment into court of the sum which he thinks is proper. He has to make allowances for interest which will be added to any award made by the court and if the plaintiff decides not to accept the payment made in and the case goes to trial then if the plaintiff recovers less than the payment made into court the defendant is entitled to all his costs from the date the payment in was made and this can impose a very serious financial burden upon the plaintiff. In Legal Aid cases the plaintiffs solicitor is bound to advice the Legal Aid Board that a payment in has been made and to express his views and possibly those of Counsel as to its adequacy

Small Claims Court This is a Court where small disputes of the value of no more than £3,000 are currently heard. It is almost in the way of arbitration being an extremely informal procedure and whilst legal representation is permitted no legal costs will be awarded even in claim for small personal injuries – Afzal V Ford Motor Company, 1994. This Court of Appeal decision was very important for insurers because previously claimants solicitors had always sought to recover costs in cases of personal injury.

Recommendations of Lord Woolf The root of the recommendations made by Lord Woolf involves case management which will no longer lie in the hands of the parties or their legal advisors. It is the Court which will make various decisions including the Court in which the case will be heard. Strict timetables will be applied and must be adhered to. The type of Court will be selected by the value of the case. All cases will be commenced by the same document – a Claim. This will be lodged at the Court which will decide the appropriate procedure to be followed and if the Court considers that there is no reasonable prospect of success or defence then either the claim or the defence can be struck out.

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The new courts Small claims will continue to be handled in the Small Claims Court and will be valued up to £3,000. However claims for personal injury other than those up to £1,000 will not be included and even where their value is well within the limit of £3,000 Fast Track Courts will be used. This is a substantial loss to insurers because as indicated in the Small Claims Court at the moment costs are not incurred. These latter courts are those with a limit above the Small Claims Court but they will be limited to £15,000. Cases will automatically be entered onto the Fast Track unless either party provides good reasons for dealing with the matter otherwise but the ultimate decision as already indicated will be made by the Court. Such cases will include a set timetable with only limited discovery of documents and a trial of no more than three hours which may be extended to one day but no more. Expert evidence will not ordinarily be allowed and there will be only limited oral evidence from witnesses, their statements providing their evidence in chief. The parties themselves will decide how to use the limited time and only a short judgement will be given. For the larger cases the Multi-Track will take over, basically those that are heard in the High Courts as presently constituted. When a defence has been received cases will be looked at to see if standard directions are appropriate or if more stringent case management is required. It is proposed there will be a case management conference shortly after the commencement and the court decides the level of trial and will seek to determine issues to be tried. For both the Fast- and Multi-Track Courts a timetable will be set with a preliminary date for pre-trial review and a target date for trial given.

Expert evidence The original proposal was that experts would be appointed by an agreement between the parties and the report would be submitted to the Court. Correspondence with the expert would not be privileged and therefore would have to be produced on discovery. These proposals have been modified in some ways but nevertheless the Courts restrictions on expert evidence will now be severe.

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Payments into court and offers to settle Under current procedures a payment into court may be made by the defendant and it is now proposed that the plaintiff may also make an offer to settle and if that is not accepted then if the plaintiff recovers more than the offer to settle the defendant will be penalised by swingeing rates of interest.

Pre-action protocols These are designed to promote settlements, impart information, make offers and all in all promote a more co-operative attitude between the parties to action. Thus, the letter of claim should be sent as soon as there is sufficient information to put forward the claim. The letter should contain a summary of facts and outline the details of the claim. The letter must be acknowledged with identification of the insurers within 21 days. The sanction is the issue of proceedings and costs to the claimant. The insurer has three months to admit or deny the claim giving the reasons for the decision and supplying copies of special damages. The sanction is the issue of proceedings and costs. The claimant must provide a schedule of special damages and supporting documents as soon as possible. Medical evidence is subject to the claimant providing a list of experts and within 14 days, the other party may object and an expert should be agreed between them. The time limits are short having regard to the fact the claimant has three years in which to prepare his claim. Insurers must therefore be prepared to investigate claims much more quickly and to reach their decision for proper reasons, set out in the letter of response. Front end loading of costs is inevitable but early and urgent investigation will be vital if insurers are to retain any sort of control of their claims. To avoid increases in staff some insurers are, or may have to, be prepared to use outsources.

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Adoption of recommendations The recommendations are to be adopted on the 1st April 1999 despite the fact that representations have been made to the Lord Chancellor for a deferment for a period of at least 6 months to allow for training and familiarisation with the new procedures. As the Rules of Court relating to the new procedures were not published until January 1999 it is to be seen that there is little time available. It is necessary for judges to undergo training in case management and the new techniques and it is to be hoped that the new system will proceed smoothly although practitioners have very grave doubts that it will. The effects on insurers will be profound and it will be much more difficult for claims to be defended. The loss of opportunity of cross examination, the use of written statements and the reliance upon the printed rather than the spoken word will undoubtedly be detrimental to defendants interests. A solid concentration on speed rather than quality can lead to a situation even worse than that which has already been criticised. Only time will tell if the reforms work and if they are successful.

Conditional fees It is the intention that in all cases where monetary compensation is sought that Legal Aid will be phased out and replaced by a system of conditional fees. Here the lawyer is entitled to take on cases on a ‘no win – no fee’ basis. He is entitled to charge a mark up of up to 100% of his normal fee but at present the Law Society recommends a mark up of no more than 25%. Proposals by the Lord Chancellor are to require insurers to pay this mark up whereas at present the claimant must do so. A market has grown for post event insurance where a claimant can insure against the risk of losing and paying his opponents costs. At present the premium is to be paid by the claimant but it is proposed that insurers should pay this premium if the case is lost.

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Legal aid As indicated above it is proposed that legal aid be phased out and in the main be replaced by a system of conditional fees. It will be kept in multi party actions and cases of importance. A legal aid certificate has always been a powerful weapon and incentive upon insurers to settle cases rather than fight because costs could not be recovered. Insurers should now be able to look upon cases on their merits rather than be guided only by economics.

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Alternative dispute resolution – damages N E G O T I AT I O N A R B I T R AT I O N M E D I AT I O N DAMAGES GENERAL DAMAGES SPECIAL DAMAGES NOMINAL AND CONTEMPTUOUS DAMAGES A G G R AVAT E D D A M A G E S EXEMPLARY DAMAGES PUNITIVE DAMAGES L O S S O F E A R N I N G S A N D E A R N I N G C A PA C I T Y INTEREST THE CLAW BACK MEDICAL EXPENSES STRUCTURED SETTLEMENTS LEVELS OF DAMAGES LEGAL COSTS SOLICITORS COSTS DISBURSEMENTS LEGAL FEES OVERALL

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Chapter 11: Alternative dispute resolution – damages The reforms which are at present being concepted in relation to legal procedure involve an emphasis upon other matters of resolving disputes – Alternative Dispute Resolution. The favoured process is that of mediation. This chapter will consider the methods of alternative dispute resolution available although the purists might well regard arbitration and negotiation as entirely separate from alternative dispute resolution.

Negotiation This is the method which has for many years been favoured by insurers and claimants legal representatives. Negotiation is an art rather than a science and involves the ability to connect discussion and correspondence on a friendly, less adversarial basis than that of strict litigation. As already indicated in claims handling the old style negotiation of starting very low and gradually working to the desired top figure by a series of steps should long since have gone, although it must be remembered that claimants solicitors will often prefer this method because it enables them to demonstrate that to their clients they have not been brow beaten into accepting the first or second offer. Allowance must always be made in the negotiation for the tactics which must be adopted by the other side in dealing with their client.

Arbitration This is a method of dispute resolution which is quite informal and favoured by insurers because of the lack of publicity. As already indicated in a previous chapter these two advantages have now gone. A body of procedure has grown up around arbitration which in many respects is now as formalised as ordinary litigation and certainly can be no less expensive, because the fees of the arbitrator have to be met. However arbitration still has a place and some disputes can be resolved by suggesting or ? to arbitration rather than to a full blown litigation. It is better by far for arbitration to be utilised in disputes between insurer and insured and it

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is unusual in the extreme, except in cases which come before Official Referees, for adversarial matters between third parties to be resolved in this way. The Arbitration Act 1951 now ensure that insurers can only insist upon arbitration under a policy in disputes over quantum where liability has been resolved.

Mediation In any High Court action at the moment, on setting down, it is necessary for both parties to answer a specific question as to whether mediation has been considered and why it is not being adopted. Lord Woolf has opted that there should be a considerable use for mediation within the reforms he has proposed. The process consists of the appointment of a mediator who is placed in possession of the facts independently by the two parties to the dispute. He then shuttles between the parties only making available information which he is authorised to do by one side or the other and eventually common ground may be achieved. It is claimed that mediation results in an 80% rate of success and is comparatively cheap. Again it would seem that mediation is perhaps more suited to the dispute between insurer and insured. However it is understood that some cases involving a third party have been submitted to mediation basically on quantum and that these have been resolved satisfactorily. Undoubtedly insurers are going to have to become much more used to mediation than they have been to date. Equally claimants solicitors must be prepared to submit such disputes to mediation which may well result in a far lesser bill of costs to them than otherwise would have been received. Sums awarded by mediator cannot really be regarded as damages and whilst they would be paid if an operative clause were to refer to compensation insurers may have to reconsider their wordings and to make the word damages rather more liberal if mediation matters are to be covered. When the claim is resolved in favour of a claimant then a payment will be made by the insurer. It is the level of this payment which of course concerns insurers because it is upon the amount of claims settlement plus other factors like outstanding claims and costs that the profitability or otherwise of the account depends.

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Damages When an award is made by the courts then that award is called ‘damages. It used to be said in English Law that the payment was a once and for all award to cover all claims howsoever arising from a particular incident. There are now provisions for interim payments and for provisional awards so that the old cast iron rule can no longer be regarded as inviolable. Damages are classified into various categories.

General damages This is the amount which is paid in respect of the injury, pain and suffering, loss of amenity and the like. Such sums cannot be quantified because they consist of compensation for intangibles. There is no tariff in English Law and the judge will award the sum which he considers appropriate. There may however be a ceiling upon the damages dependent upon the type of court in which the action is brought. In cases of property damage then the award may consist of compensation for repair and other outgoings which will be regarded as general damages specially proved.

Special damages These are items which can be specially proved such as loss of earnings, medical expenses and similar items. They are called special damages because they can be specially proved either by the production of receipts or wages slips or by straight mathematical calculation.

Nominal and contemptuous damages These types of damages are not usual in cases where insurers are involved but occasionally can occur. Such awards are made where a right has been infringed but no actual damage suffered and in the case of the latter where the Court thinks the action entirely unjustified. If the defendant has had the foresight to protect himself by making a payment into Court the plaintiff will find that he is considerably out of pocket in relation to costs.

Aggravated damages These are awarded where the conduct with the defendant has been such as to cause the court to consider that an award over and above that which is normal should be made.

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Exemplary damages These are substantial awards made in fairly limited circumstances and up until now have been defined as where the defendant has been acting in a public capacity and is viewed as in a position to be oppressive or where the defendant having knowledge of what might occur, has calculated that an award of general damages will not be sufficient to affect his own profit. For many years insurers were uncertain whether aggravated and exemplary damages were the subject of indemnity under a policy but the position has now been resolved in the case of Lancs. CC V Municipal Mutual, 1996, where the court held that it was not against public policy to allow insurance for a vicarious liability involving conduct which brought about an award of aggravated damages. It was also commented that insurers were able via a comparatively simple drafting procedure to alter their policy so that if they wished to exclude liability for such awards they could do so. Unhappily awards of exemplary damages seem to be on the increase and they can be quite substantial – as in the case of Treadaway V CC West Midlands, 1994, where an award of £40,000 was made because of the conduct of the police.

Punitive damages There is some confusion between exemplary and punitive damages because the latter are in fact unknown in English law. They receive considerable publicity in relation to matters in the United States and have been the cause of much concern to insurers over the years. Again the position in relation to punitive damages was considered doubtful by some underwriters in much the same way as aggravated damages in the United Kingdom. It has always been clear that unless the words of the policy are clear and specific and definitely exclude punitive awards that they will be covered. They will be covered because whilst punitive in nature they are a part of a civil award and they are not a fine which will go to the state and for that reason cover will be there unless clearly excluded as indicated in Lancs CC V Municipal Mutual (above).

Loss of earnings and earning capacity Loss of earnings form a considerable part of any award in respect of special damages and is normally calculated on an arithmetical basis by looking at payslips and the like. Up until the date of any trial or settlement the loss of earnings is special damage but where there is a continuing loss of earnings, that will be claimed as an item of general damage although calculated as accurately as possible. The

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pay with which the insurer is concerned is the pay after deduction of tax and National Insurance and there are some cases where that is not straightforward and is not an easy calculation to be made. In Gourlay V BTC, 1957, the court made it clear that it was not concerned that tax be calculated to the last penny but the matter be dealt with as one of general principle and such an assessment be made. This concept becomes of great importance at the present time when so many people are self employed or on short term contracts. The recent case of Ward V Newalls Insulation, 1988, has indicated that the courts will take account of an arrangement made for tax purposes – in other words they will now recognise arrangement for tax avoidance schemes in the calculation of damages. Such claims are obviously scrutinised carefully.

Interest Interest is awarded upon damages as the result of the Administration of Justice Act 1969 and this applies at all cases unless the conduct of the plaintiff was such as to dis-entitle him to interest. The justification for interest is that the defendant has had the use of the plaintiffs money since the cause of action arose. Interest on general damages is paid from the date of the accident to judgement even though they have not yet been assessed. Interest is payable on monies paid into court at short term rates – this is favourable to insurers. With special damages interest is paid only from the date of the issue of proceedings and insurers are often asked to agree to interest running from the date of a letter before action to avoid the issue of legal proceedings. Insurers should be very wary about such requests because there is then no pressure upon the plaintiff to expedite his action.

The claw back From 1948, until the Social Security Act 1989, insurers were entitled to take into account one half of Social Security benefits payable under the National Insurance Act. Such deductions were made from the claim for the loss of earnings for the period of five years from the day on which the Right of Action accrued. Whilst some benefits over the years were excluded insurers were entitled to take 50% of the benefit into account in general terms. This was the result of a compromise agreed between the TUC and the Government when the question of legislation for the Social Security benefit was being discussed. The Social Security Act 1989 altered the position and made it necessary for the compensator – usually the insurer – to refund all benefits paid to a claimant to

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the DSS. Cases where the payment did not exceed £2,500 were exempt and the old rules of 50% applied to such matters, but that has now been changed and all benefits must be refunded. Where the benefits exceed the claim for loss of earnings then no deduction will be made from general damages, and the compensator will still be liable to pay the whole amount. There is a procedure for the obtaining of the certificate and it is the responsibility of the compensator to ensure the benefits are taken into account before making a payment into court or concluding a settlement. If he fails to do so then he, the compensator, will be liable to refund the amount of benefit even though he has already paid the claimant. A recent case of Wadey V Surrey County Council, 1999, said that the court should disregard state benefits received by the plaintiff as a result of the accident but calculated interest on the plaintiffs damages for past losses. In other words although benefits have to be paid back to DSS the interest on those benefits must be paid to the claimant.

Medical expenses It is not necessary for medical treatment to be obtained on the National Health Service because by the terms of the Law Reform (Personal Injuries) Act 1948 medical expenses may be recovered in any claim for personal injury. To date such claims have not been numerous but there is now greater use of medical insurance and included in most private medical insurance schemes is a subrogation clause allowing the insurer to recover any expenditure to which he has been put by a negligent third party. The Law Commission in a recent report suggested that all NHS charges be recovered from negligent parties. The Government has gone someway down that path by introducing the Road Traffic (NHS Charges) Act Bill which will seek to recover hospital charges from motor insurers and the MIB. This may be regarded as the thin end of a very substantial wedge which ultimately will be used to recover such charges not only from motor insurers but from PL & EL insurers also. Charges will now be computed on a national basis and collected by the Compensation Recovery Unit. Charges to be levied for accidents before 2 July 1997 are £295 flat rate charge for out patient treatment: £435 per day for in patient treatment, to a maximum of £3,000. For accidents on or after 2 July 1997 the flat charge is £354 for out patient treatment and £435 per day for in patient treatment to a maximum of £10,000.

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There is scope for revision of charges – insurers are going to find this new arrangement a substantial drain on funds.

Structured settlements To try and avoid the enormous increase in damages which has been seen for some years many, both on insurers and plaintiffs sides, have argued that the answer is a structured settlement. What happens is that a settlement is agreed and the sum agreed used to purchase an annuity which can then be provided to the claimant tax free. The advantage to the insurer is that some money will be saved and by the terms of the Finance Act 1985 annuities can be paid gross and insurers have even more to gain because of the absence of previous quite substantial administrative charges.

Levels of damages It is beyond the scope of this report to comment on payments for individual injuries except to say that those in respect of injuries of the utmost severity have increased enormously particularly since the case of Wells V Wells, 1998, where the discount rate was altered substantially in favour of plaintiffs and actuarial tables used for the calculation of the expectation of life on a whole life basis. This has resulted in an enormous increase in awards for cases of the utmost severity and the recent case of Biesheuvel V Birrell, where £9.2M was awarded to the plaintiff who was made a quadraplegic following a motor accident emphasises this. In one case the previous highest known award of £4.3M has been more than doubled and whilst this was an exceptional case with a very substantial award for continuing care and continuing loss of earnings there will be an inevitable locomotive effect and other awards will be dragged along with it. The Law Commission in a recent report has said that awards for pure general damages, ie. compensation for actual injury, are too low and should in most serious cases be doubled. It is true that the general damages component in a large award, has not increased as much as or as quickly as the other components. Nevertheless, it is submitted that the package as a whole must be considered in the round. The difference between Leung and Biesheuvel is over 100%.It can only be said that awards, particularly in cases of utmost severity, will continue to rise at a much higher rate than previously because of the Wells V Wells decision.

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Legal costs For many years legal costs were not regarded as matters of great concern to insurers because they could simply be added to the cost of settlement and ran at about 10%. That position has now changed considerably.

Solicitors costs Solicitors charge at an hourly rate and they are entitled to add to their hourly rate a per centage in respect of the degree of care and skill which is deemed necessary for the particular case. There is no other profession where such an addition is made and it does seem somewhat strange that it should be allowed. The number of hours employed can be scrutinised if the solicitors costs are regarded as excessive and a process called taxation will take place. This is where the registrar of the local court or a Master in London will scrutinise the bill and disallow items which he considers have been charged improperly or excessively. Nevertheless, legal costs in the present day and age are extremely high. Not only have plaintiffs costs to be looked at but also those paid by insurers to their own solicitors. If the insurers consider that they are being overcharged then discussion should take place with the solicitor and if the matter cannot be resolved then the Law Society will be prepared to scrutinise the bill and decide upon its fairness. If that stage is reached however it is better by far to pay the bill and part company with the solicitor.

Disbursements Disbursements will include not only the fees of experts such as doctor and engineers but also the fees of Counsel. The fees of the bar have generally been regarded as being for a lump sum – the brief fee – with what are called refreshers for daily attendance of the court hearing thereafter. Now some Chambers are going over to a system of hourly rates and the fees thus become more transparent. Whilst the fees of the bar cannot be regarded as low there is not quite as much overcharging as is perceived by the press and the lay public. Very often a good Barrister will save a vast amount of money not only on damages but also on costs. If the case is sufficiently important to utilise the services of a Queens Counsel then his fees will obviously be more expensive than those of a junior member of the bar. It has to be remembered that some of the more fashionable leaders

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whose names are well known because of press reports specialise in some of the more esoteric areas of the law and it is this speciality and the comparative rarity which entitles them to charge these very high fees. A more mundane QC dealing with matters in the Queens Bench Division will not be charging at those sorts of rates.

Legal fees overall Legal fees overall now have to be considered because they have become so much higher and now form a substantial part of claims costs. The decision therefore whether to contest a case is one no longer to be taken quite so lightly as it was in the past. If it is regarded as a matter of principle that 25% contributory negligence be established in a particular case, then care must be exercised to see if the total bill for legal costs does not exceed the saving which is made even if the argument is successful. It is very dangerous to consider that cases should be contested on principle because very few cases are ultimately decided on the point of the original argument. Cases must be very carefully selected before litigation unless the plaintiff is particularly unhelpful and insists on his day in court.

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Spreading the risk – estimating and reserving SCHEDULED POLICIES THE POSITION OF EACH INSURER LEAD INSURER L AY E R E D I N S U R E R S P R I M A R Y L AY E R U P P E R L AY E R S R E L AT I O N S H I P S COSTS AND COST SHARING C O - O P E R AT I O N I N I N V E S T I G AT I O N W H A T H A P P E N S W H E N T H E P R I M A R Y L AY E R P AY S I T S L I M I T REINSURANCE T R E AT Y R E I N S U R A N C E F A C U LT A T I V E R E I N S U R A N C E SPECIAL RISKS RAISING OF RETENTIONS R E I N S U R E R S R E L U C TA N C E T O TA K E C E RTA I N R I S K S M A R K E T C A PA C I T Y E S T I M AT I N G A N D R E S E R V I N G E S T I M AT I N G B A S I S O F E S T I M AT I N G IBNR CLAIMS A C T U A R I A L M AT T E R S RESERVING REINSURANCE RECOVERIES T E R M I N AT I O N S O V E R E S T I M AT I N G CLAIMS SETTLEMENT COSTS

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Chapter 12: Spreading the risk – estimating and reserving Because damages have been increasing at such a rapid rate and because the risk of multiple claims arising from one source seems to have increased, and because also the cost of repairing damaged property has increased so, markedly limits of indemnity required by policy holders have been increasing also. Insurers on the other hand have not been terribly happy about the thought of increasing limits of indemnity to such high figures as some policy holders would like. The reasons for this are that insurers do not wish to expose themselves if their retention limits before reinsurance are high; they may not wish to expose their reinsurers; and finally they might not be able to obtain reinsurance of the sort of limits that are required. Other methods therefore have been used to spread the risk.

Scheduled policies A scheduled policy is one where a number of insurers are involved with one risk each taking a per centage of the insurance. Thus if an insurer were to decide to take 17.5% of a risk then he will be responsible for paying 17.5% of each claim. In return he will receive 17.5% of the premium. The schedule to some extent is similar to the scheduling of risks which takes place at Lloyds.

The position of each insurer Each insurer is liable separately to the insured for the proportion of the risk which he has undertaken. Each insurer has a direct relationship with the insured and this is not similar to reinsurance at all, where there is no relationship between insured and reinsurer.

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Lead insurer The lead insurer is the insurer who conducts negotiations in respect of the premium and the terms and conditions of the insurance. He will also be responsible for filling in the schedule so that 100% figures is achieved. He will deal with the claims and normally is provided with an authority enabling him to do so. Where claims are extremely heavy ones then there may be an arrangement for or on an add hoc basis the lead insurer may summon a meeting of his co-insurers to determine a course of action or to agree a sum to be paid. In return for his services in this capacity then the lead insurer is normally paid a per centage of the premium in addition to that which he is entitled by virtue of his share.

Layered insurance Another method of obtaining high levels of indemnity is by layering the insurance. This means that at various levels a new insurer will take on part of a risk. At any level the layer may be scheduled but the arrangement is quite different from the scheduled arrangement which has been considered above.

Primary layer The primary layer will be the first layer of the insurance and the limit of indemnity given may be the maximum to which the insurer will underwrite or it may be the maximum he is prepared to take in respect of that particular risk. The rate of premium will always be higher at this level because the primary insurer will deal with all of the smaller claims and he will be responsible for the initial investigation and handling of larger claims before an upper layer becomes involved.

Upper layers The second layer will take over the indemnity from the primary layer when that is exhausted or if it appears that it will become exhausted. There may then be third, fourth and fifth layers so that very substantial limits of indemnity indeed, sometimes up to £50M or even £250M are involved.

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Relationship There is strictly no relationship at all between the primary layer and the upper layers. Each of them is issuing a policy for their own interests for their own limit of indemnity and they can act quite independently. It is clear however that where there is a very substantial claim reported, that the upper layers should be advised as soon as it is clear that they will become involved. If they are not so informed and for any reason such as late report, upper layers reinsurers fail to respond, it is conceivable that there could be a right of action against the primary layer. Such actions have taken place in the United States. When the initial investigation has been carried out and the sum involved is known if it appears that the primary layer will be exhausted then the insured must be advised by the primary layer to inform the upper layers.

Costs and cost sharing In the previous chapter, the question of legal costs was discussed and it was emphasised that legal costs have increased enormously. The primary layer, because of the very nature of its involvement, will incur the cost for the investigation of claims and will clearly have first consideration of the employment of solicitors and other experts. When other layers become involved it is clearly wasteful for them to incur costs separately and therefore it is normal for some sort of sharing arrangement to be made and that sharing agreement should embrace the situation where at the end of the day the upper layers are not involved because the claim is settled or disposed of at below the limit of the primary layer. Such a cost sharing arrangement is obviously not only in the interests of the insurers but of the insured as well. The primary layer always has the fall back position that they will not allow upper layers sight of the results of their investigations or of their lawyers work product unless such an arrangement is made. That should very rarely happen.

Co-operation in investigation Once the upper layers have been involved then as long as some arrangements have been made as to costs then there should be communication between all layers so that they are all aware of the way in which the claim is being handled and may express their views. Once it becomes clear that the primary layer will be exhausted it is open to the primary layer to pay his insured the amount of

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money involved and to pay all the costs which have been incurred to date subject to any arrangement which is being made. It may be that because of the arrangement for cost sharing it will suit the primary layer to maintain its position until the matter is finally resolved by judgement, settlement or the like.

What happens when the primary layer pays its limit? When the primary layer has decided to make its payment to its insured then it will do so paying all the costs which have been incurred to date. It is then for the insured to decide what to do with the money that has been received. Under the terms of the policy that money belongs to the policy holder and is not being held in trust for the third party or any other party but it would behove the insured to place it in some sort of trust account in an attempt to protect that asset in the event of it coming into financial difficulty. Once that money has been paid by the insurer then the insurers interest ceases and the provisions of the Third Parties (Rights Against Insurers) Act 1931 no longer apply.

Reinsurance An insurer will wish to protect its own account from excessive exposure and this is of course done by reinsurance. Any scheduled insurer or any layer will probably have its own reinsurers involved because its limits of indemnity in such insurances are extremely high.

Treaty reinsurance The most common and usual way for the placing of liability reinsurance is by the Excess of Loss Treaty. This provides that the ceding insurer will retain what it considers to be its maximum limit for each claim and over that the reinsurer will pay the rest up to its own limit of indemnity. As with layered insurance, there may be layered reinsurance and several treaties may be involved in a particular claim. As each treaty reinsurer pays to its limit so its interest in the matter ceases. A typical programme of treaty reinsurance might be for the primary retention of £1M; the first treaty reinsurance £1M to £2.5M; second treaty £2.5M to £10M; third treaty £10M to £25M and so on until the maximum that the insurer requires is filled in by the treaties.

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Facultative reinsurance This is used rarely in liability insurance but may apply to certain special risks such as airlines, aircraft products, and other risks which are regarded as especially hazardous and therefore should be excluded from a treaty.

Special risks Special risks may be outside the scope of a normal facultative arrangement which has been made and may require even more special arrangements. They may apply to risks where a large number of high earners are present; a construction risk where there is a very high risk of serious damage caused by subsidence and risks of this nature. Normally such special risks are attached to a large risk as otherwise insurers would tend to try and pass them.

Raising of retentions Because of what happened in the Piper Alpha disaster and the aggregation of risk reinsurers decided that limits should be raised as they had been far too low and with the increase of damages in the United Kingdom market it seemed clear that they would become more heavily involved in the future. Therefore retention limits would be raised and it became more difficult for reinsurers in certain specialised areas. The raising of limits has certainly brought about a much more realistic attitude in the writing of certain risks because undoubtedly some underwriters did write business on the back of their reinsurers.

Reinsurers reluctance to take certain risks Some reinsurers have now shown extreme reluctance to take risks such as oil rigs or associated risks; aircraft passengers in EL cases; and other cases where there is a concentration of risk with a possibility of disaster. Such reluctance to take risks of this sort has in the view of reinsurers caused more realistic underwriting, a view which can certainly be shared and to some extent applauded.

Market capacity Market capacity is undoubtedly being eroded by the amalgamation of companies and unfortunately, by the going into run off of certain specialist organisations. Some insurers have viewed that with a certain degree of equanimity on the basis that a lack of capacity means that this will be possible to increase premiums.

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However competition is introduced by the arrival of Continental and US Organisations into the market who may be prepared to write business to far higher limits than UK insurers have been used to. All of this is an indication of the difficulties which the liability market has been undergoing and which may continue.

Estimating and reserving One of the primary functions of the claims department is to produce estimates in respect of the cost of known claims and also to estimate what is likely to be the cost of Incurred But Not Reported claims (IBNR). It has been necessary for the latter to be produced since the 1960’s when the Insurance Companies Acts were revised. These items are in fact the most substantial items on the balance sheet of any insurer. They are therefore of extreme importance.

Estimating When a claim is notified to an insurer the claims department will record its entry and will then be responsible for considering an estimate of its likely cost. Some insurers now utilise an average cost basis, however, unless a public liability account has a large number of small claims reported average cost is not a particularly useful method of estimating at this very early stage. Average cost may be used for claims up to a particular value, say £2,500. Over that claims may be individually and manually estimated and in any event even those cases estimated on average cost should be reviewed at regular periods, say every three to six months.

Basis of estimating Management will previously have taken a decision as to whether claims are to be estimated on a 100% basis, i.e. assuming that the insurer is totally liable in all cases or when the liability and the circumstances are to be taken into account. The first of these is preferable because it provides a cushion against under estimating in other cases and it also removes one of the variables in the calculation of estimates. Where a 100% basis is used then it is not unreasonable when estimates are aggregated for reserving purposes for a per centage calculated from previous experience to be used as a discount factor say 10%.

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IBNR claims At the end of the insurers financial year the insurer will know of all claims which have been reported to him. However, there will be a large number of incidents which have occurred where no report has been made because no claim has come forward and indeed at that stage the insured may know nothing at all of a potential claim. This does not alter the fact that liability in respect of a claim which may or may not be made has been incurred because of the insurer’s being on risk at the time. Such potential claims are known as Incurred But Not Reported claims and when reserves are being set up the insurer must estimate the known claims and it must also make provision for IBNR claims which will be reported in the coming years. In a liability account unlike a material damage claim there may be a considerable delay in the reporting of the claim. A reserve can be set up by: •

Studying over a period of years a number of IBNR claims reported year by year.

•

Finding the cost of settlement of those claims and finding the average.

•

Finding the number historically of IBNR claims and calculating from that the number of claims to be anticipated in the current year.

•

Applying either of the company averages calculated in average cost for known claims or the average cost of IBNR claims as determined above and multiplying by the anticipated number of IBNR claims.

It is a basic essential of claims estimating that an adequate reserve be set up for IBNR.

Actuarial methods Actuarial methods have been adopted in the calculation of the long tail of liability claims particularly in relation to the employers liability field. Such matters have also been utilised in public liability and the methods used by actuaries are by their very nature complex. At the simplest actuarial level will be used a triangulation, the vertical line being the year of occurrence and the horizontal the number of years outstanding. The triangle is then plotted on the number of claims reported and it is common for companies to keep open in the liability field accounts for seven years and all claims notified in that period are allocated to the earliest open year. The object of the triangle is by forecasting to fill in any blank spaces and then to plot the number for the reserve figure. The problem with the public liability accounts is that there can be a small number of very large claims which can distort averages and such claims should therefore be excluded from the average calculation.

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Reserving When all of the claims have been aggregated and the totals are known then it is for the management to determine the level of reserves which are to be set. This will depend upon the policy previously adopted as to whether a 100% basis of liability, or a shading for liability, is to be adopted. The accuracy of the estimates can be checked from the Department of Trade and Industry return which has to be completed and submitted by insurers year on year. Whilst public liability claims are not shown separately from a total of liability what can be determined is the accuracy of the estimating by the particular company. An actuarial calculation of reserves may in fact be used as a check on the claims department estimates, as may the claims department be used to check on the actuarial method. Normally the most conservative method will be chosen.

Reinsurance recoveries Estimates will be gross and reinsurance recoveries estimated to be received must be shown through the journal and thus below the line.

Terminations If there is a strong policy for properly estimating claims then it follows that an estimate must be held only for those claims which are properly outstanding. A proper policy of termination must be in existence and this will mean that at some stage during the accounting year a mechanical check must be initiated to ensure that all claims which are shown as outstanding in the claims department records are outstanding and that there is no dead wood in the accounts.

Over estimating There are two dangers in over estimating claims: 1.

A consistent pattern of over estimating will result in the building up of reserves which are too high and in the failure to declare profits which will ensure adequate dividends are paid to shareholders.

2.

The Inland Revenue may take the view that such over estimating is taking place deliberately and is an attempt to evade the payment of proper taxes. In such cases it has been known for the revenue to require the insurer to pay the tax on what it regards as the excess reserves.

It is for these reasons that estimating and reserving must be regarded as of prime importance.

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Claims settlement costs EU rules require that within an insurer’s reserves there must be included an item in respect of claims settlement costs. This means insurers must calculate and include the anticipated internal costs for dealing with outstanding and IBNR claims. Where outsources are used, their costs will be included normally in the claims estimates. Care must be taken that such reserves are not duplicated.

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Future developments T H E E X PA N S I O N O F T H E C O N C E P T O F N E G L I G E N C E STRESS CASES INCREASES IN DAMAGES CHANGES IN LEGAL PROCEDURE C H A N G E S I N C O M P E N S AT I O N P R O C E D U R E THE EFFECTS ON LIABILITY INSURERS CAN INSURERS COPE?

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Chapter 13: Future developments Undoubtedly all liability insurers, not only in the UK, are undergoing severe difficulties. One of the US credit agencies in the very recent past has said that technically all liability insurers in the world are insolvent if all liabilities were to crystallise at the same time. It is necessary to consider some of the problems which have recently concerned liability insurers and will continue so to do.

The expansion of the concept of negligence Recent cases have made it clear that the courts will not hesitate to expand the concept of negligence and to find duties which have not been considered previously, or to widen the scope of duties already in existence. Thus, courts will now take into account the possibility that a person might be employed in a particular capacity in the future. They will give a per centage chance of the likelihood of that job being achieved and award damages accordingly which can be in some cases extremely high as in the recent case where £9.2M was awarded.

Stress cases Whilst the principle that damages can be awarded for psychological damage although previously called nervous shock is not new and goes back to the early years of this century it was always the principle that there must be some physical harm to be expected by the claimant and that merely being a spectator was not sufficient. Following the Hillsborough cases that concept was expanded and provided that there was some tie of natural love and affection between claimant and victim and that some recognisable symptom of a psychological disturbance could be identified then damages would be awarded. That concept has to some extent been restrained by the recent case of Frost V CC of South Yorkshire, where it was said that members of the rescue services trained as they are to deal with stressful situations should be able to deal with such events but that does not effect the basic principle that members if the lay public may receive compensation.

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Indeed the Law Commission has recommended that the categories of potential victim be expanded and that even those that see such tragic events on television might be considered for compensation. Certainly this is a most rapidly expanding sphere and all liability insurers must be and are extremely concerned at the potential for future claims which has now been revealed.

Increases in damages The case of Wells V Wells is already having its effects and the recent award of £9.2M has indicated how wide reaching these effects can be in producing a much higher multiplier and a difference in discount rate which produces such an enormous increase. Indeed the comparison with damages in the US which has been made in the past is no longer valid because some of the awards in the UK certainly exceed awards in similar conditions in many States of the Union. Certain of the Mid-Western States for instance, commonly make awards which are much lower than those to be found in the United Kingdom. The idea of punitive damages has not yet been adopted in the UK but what is very frequently overlooked is that the high profile awards of punitive damages are often reduced to a fraction of the original award on appeal. The question to be asked is, are damages in UK to low? It is true to say that awards of general damages for personal injury or loss of amenity have not increased as markedly in the United Kingdom as have the smaller cases but in the very large cases very substantial awards are made for future earnings loss and constant care. A report commissioned by the ABI into what happened to the victims of accidents who had received very substantial awards indicated that much of the money provided for future care was not in fact expended in this way. It seems clear however that such awards will continue to be made and probably at higher levels because of the impact of the Wells V Wells decision. Again insurers have felt the impact of the claw back and may at some time in the future become involved in the recoupment of NHS medical charges.

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Changes in legal procedure The changes in legal procedure which are due to take place in the spring of 1999 are certainly not going to assist insurers. It can be argued that if legal proceedings are speeded up then damages may not increase as they have done over the delay period. However, it must be born in mind that restricted discovery of documents, restrictions on oral evidence and cross examination can all operate to the detriment of defendants. The other consideration that has to be born in mind is that there will be front end loading of costs because insurers really will have to launch a detailed investigation into many more claims than they have done up to the present time.

Changes in compensation procedure Legal Aid is for practical purposes to cease in all cases of claims for monetary compensation which will include personal injury claims. It is the intention that they should be substituted by a system of conditional fees whereby the claimants solicitor takes on the case on a no-win no-fee basis. When these proposals were first implemented the additional fee to be charged by the lawyer – the mark up – was to be paid by the successful claimant. In addition post event insurance was developed so that a claimant could be insured against the risk of having to pay the successful opponents costs. Again the premium was to be at his own expense. New Government proposals however now make it clear that it is insurers who will pay the mark up and also be required to reimburse the insurance premium. A mark up of up to 100% is permitted but the Law Society decided that no more than 25% should ordinarily be charged. It is likely with the change that such a fetter on the ability to charge a mark up will disappear and here again insurers will be involved in further expense. It is not compulsory for insurance to be taken out in additional fee cases as has been evidenced by the ongoing tobacco litigation. If that was so insurers would be placed in a very invidious position as decisions would then have to be taken whether injured plaintiffs who were unsuccessful in an action for damages were to be pursued for the costs incurred.

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The effects on liability insurers It is clear that proposals which are before the legislature, and some of those which have already been implemented, are likely to increase the expenditure of insurers on liability claims. This impacts not only on public liability insurance but on all policy insurance where there is liability cover. There are two answers to the problem of increasing claims cost: 1.

Premium increases. Liability rates have shown a steady increase of the last few years but it is being made clear by actuaries and others that the rates being charged are still too low. In relation to motor insurance for instance consulting actuaries have already indicated that a rate increase of 20% might be needed to bring accounts back into profit having regard to what is happening and will continue to happen in relation to personal injury claims.

2.

Restriction in the scope of cover. It would be a sad day if on the public liability field a whole host of restrictions and exclusions which used to appear were to be found necessary again and for policy holders to be required to buy in aspects of cover which may be essential to them.

At the present time public liability insurance is not compulsory. There have been no proposals to make this type of cover obligatory upon the public and it might be difficult for this to be done. In so far as the personal policy holder is concerned then there is liability insurance included in all household policies. The compulsion would therefore be directed towards commercial and business enterprises. At some stage it is likely that this will be considered.

Can insurers cope? Because of the very conservative way in which claims have been estimated in the past liability insurers have been able to cope with these legislative and legal alterations which have operated to their detriment. So often when a change occurs it applies to all outstanding claims and thus there can be an IBNR liability for which no provision has been made in the past and it is only the conservative level of estimates which have enabled insurers to cope. Supervision of insurers is quite strict and is now in the hands of the Treasury. It is the responsibility of the insurance section to ensure that reserves are at a reasonable level. A separate department of the Treasury, the Revenue, is however concerned that insurers pay the right level of tax and there should surely be a

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greater level of co-operation between these two sections and their competing interests, so that insurers can reserve without the possibility of being required to pay tax on what may be regarded as any over provision. Provided that levels of premium are achieved as necessary and that past liabilities are not imposed then undoubtedly insurers who have coped with difficult situations in the past will continue to do so. It really is essential that they do.

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PUBLIC LIABILITY POLICY – 1 PUBLIC LIABILITY INDEMNITY POLICY – 2 LIST OF CASES TA B L E O F S TAT U T E S

appendices

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Public Liability Policy – 1 In consideration of the payment to the Insurers of the First Premium stated in the Schedule the Insurers agree to indemnify the Insured (subject to the terms, limitations and conditions herein contained) during the period stated in the Schedule and during any subsequent period for which the Insurers shall have accepted the premium required for renewal of this Policy in respect of all sums which the Insured shall become legally liable to pay as compensation for:

Section I – Public Liability a)

accidental death of or accidental Personal Injury to any person other than an Employee where such death or Personal Injury arises out of and in the course of the employment

b)

accidental loss of or accidental damage to material property

c)

accidental obstruction, accidental trespass, accidental nuisance or accidental interference with pedestrian, road, rail, air or waterborne traffic occurring during the currency of this Policy within The Territorial Limits in connection with the Business of the Insured. The liability of the Insurers under this Section for all compensation payable by the Insured to any claimant or number of claimants in respect of any one occurrence or all occurrences of a series arising out of one original cause shall not exceed the Limit(s) of Indemnity.

Exclusions – applicable to Section I The indemnity granted by this Section of the Policy shall not apply to or include: 1.

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liability arising from the ownership or possession or use by or on behalf of the Insured of any mechanically propelled vehicle or mobile plant a)

which is licensed for road use or

b)

for which compulsory motor insurance or security is required or

c)

which is more specifically insured.

APPENDIX

Provided always that this exclusion shall not apply in respect of: a)

liability not more specifically insured under any other policy arising during the act of loading or unloading mechanically propelled vehicles or mobile plant or the bringing to or the taking away of a load from such vehicle or such plant

b)

the use of any mechanically propelled vehicle or mobile plant solely as a tool of trade unless more specifically insured or unless compulsory motor insurance or security is required

c)

the unauthorised movement on the Insured’s premises or contract site of any mechanically propelled vehicle or mobile plant unless more specifically insured or unless compulsory motor insurance or security is required.

2.

liability arising from the ownership or possession or use by or on behalf of the Insured of craft designed to travel through air or space, hovercraft or watercraft other than barges, motor launches and non-powered craft used on inland waterways.

3.

liability arising from Products after they have ceased to be in the custody or control of the Insured other than food or beverages for consumption on the premises of the Insured or at any other premises where the Insured is carrying on the Business.

4.

loss of or damage to that part of any property upon which the Insured or any servant or agent of the Insured is or has been working where the loss or damage is the direct result of such work.

5.

loss of or damage to property belonging to the Insured or held in trust by or borrowed, rented, leased or hired for use by the Insured but this exclusion shall not apply to:

6.

a)

the personal effects (including vehicles and their contents) of directors Employees and visitors

b)

buildings or their contents temporarily occupied by the Insured for the purpose of carrying out work therein or thereon

c)

premises (or fixtures and fittings therein) hired, rented, leased or lent to the Insured other than such loss or damage if liability is assumed by the Insured under a tenancy or other agreement and would not have attached in the absence of such agreement.

the first £100 of compensation payable for loss of or damage to material property in respect of any one occurrence or all occurrences of a series arising out of one original cause.

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Provided always that the Insured shall indemnify the Insurers in respect of any such amount for which the Insurers have made a payment.

Section II – Products Liability a)

accidental death of or accidental Personal Injury to any person other than an Employee where such death or Personal Injury arises out of and in the course of the employment

b)

accidental loss of or accidental damage to material property occurring during the currency of this Policy within The Territorial Limits and caused by Products.

The liability of the Insurers under this Section for all compensation payable by the Insured in respect of all such death or such Personal Injury and such loss of or such damage to such material property occurring during any one Period of Insurance shall not exceed the Limit(s) of Indemnity.

Exclusions – applicable to Section II The indemnity granted by this Section of the Policy shall not apply to or include: 1.

replacing, reinstating, rectifying, repairing, recalling or guaranteeing the performance of any Products

2.

liability arising from any Products a)

b)

which at the time of the contract of sale or supply are knowingly i)

sold or supplied for use in craft designed to travel through air or space

ii)

exported to the United States of America or Canada

in the custody or control of the Insured.

General Exclusions The indemnity granted by this Policy shall not apply to or include:

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1.

liability in respect of liquidated damages or fines or penalties which attaches solely because of a contract or agreement

2.

liability arising out of professional advice given by the Insured for a fee or in circumstances where a fee would normally be charged

APPENDIX

3.

any Associated or Subsidiary Company of the Insured or Branch Office or Representative of the Insured with Power of Attorney domiciled elsewhere than in Great Britain, Northern Ireland, the Channel Islands or the Isle of Man

4.

any legal liability of whatsoever nature directly or indirectly caused by or contributed to by or arising from

5.

a)

ionising radiations or contamination by radioactivity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel

b)

the radioactive, toxic, explosive or other hazardous properties or any explosive nuclear assembly or nuclear component thereof

any consequence, whether direct or indirect, of war, invasion, act of foreign enemy, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection or military or usurped power.

Extensions Legal Costs 1.

In addition to the indemnity provided by Sections I and II of this Policy the Insurers will indemnify the Insured in respect of all legal costs awarded to any claimant or incurred in the defence of any claim that is contested by or with the consent of the Insurers.

Additional Benefit 2.

The Insurers will pay the costs incurred with their consent for a)

representation at any Coroner's Inquest or Fatal Inquiry in respect of any death

b)

defending in any Court of Summary Jurisdiction any proceedings in respect of any act or omission causing or relating to any event

which may be the subject of indemnity under this Policy.

Personal Representatives 3.

In the event of the death of the Insured the indemnity provided by this Policy shall apply to any personal representative of the Insured in respect of liability incurred by the Insured.

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Provided always that such personal representative shall as though he were the Insured observe, fulfil and be subject to the terms, limitations and conditions of this Policy.

Health and Safety at Work, etc. Act 1974 – Legal Defence Costs 4.

The Insurers will indemnify the Insured or at the request of the Insured any director or Employee of the Insured against legal costs and expenses incurred in the defence of any criminal proceedings brought for a breach of the Health & Safety at Work Act 1974 or the Health & Safety at Work (Northern Ireland) Order 1978 or any regulations made thereunder committed or alleged to have been committed during the Period of Insurance including: a)

costs of prosecution awarded against the Insured or any director or Employee of the Insured

b)

legal costs and expenses incurred with the consent of the Insurers in an appeal against conviction

arising from such proceedings. Provided always that the Insurers shall not be liable under this Extension for the payment of fines and penalties of any kind or the costs of appeal against improvement or prohibition notices.

Cross Liabilities 5.

Where this Policy is issued in the joint names of more than one party it will indemnify each party in the same manner as if a separate Policy had been issued to each of them.

Indemnity to Directors 6.

In the event of any claim in respect of which the Insured named in the Schedule hereto and Employees would be entitled to receive indemnity under this Policy being brought or made against a)

any director or Employee of the Insured

b)

any officer, member or Employee of the Insured's social, sports or welfare organisations or first aid, fire or ambulance services

the Insurers will indemnify such person if the Insured so requests against such claim and/or any costs, charges and expenses in respect thereof.

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APPENDIX

Provided always that: a)

such person is not entitled to indemnity under any other insurance

b)

such person shall as though he were the Insured observe, fulfil and be subject to the terms, limitations and conditions of this Policy

c)

the Insurers shall not be liable under this Extension unless the Insurers have the sole conduct and control of all claims.

Defective Premises Act 1972 7.

The Insurers will indemnify the Insured against liability at law incurred by the Insured under Section 3 of the Defective Premises Act 1972 or Section 5 of the Defective Premises (Northern Ireland) Order 1975 in connection with premises which have been disposed of by the Insured. Provided always that the Insurers shall not be liable under this Extension: a)

for the cost of remedying any defect or alleged defect in the said premises

b)

in respect of liability more specifically insured under any other insurance.

Indemnity to Principal 8.

In the event of any claim in respect of which the Insured would be entitled to receive indemnity under this Policy being brought or made against any Public or Local Authority or other Principal the Insurers will indemnify the said Public or Local Authority or other Principal against such claim and/or any costs, charges and expenses in respect thereof.

Provided always that the Insurers shall not be liable under this Extension unless the Insurers have the sole conduct and control of all claims.

Personal Liability Overseas 9.

This Policy applies to the personal liability of any director or Employee of the Insured or any member of the family of such director or Employee whilst accompanying such director or Employee during temporary visits anywhere in the world in connection with the Business of the Insured. Provided always that a)

this Extension shall not apply to: i)

legal liability arising directly or indirectly from:

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ii)

a)

any agreement or contract unless liability would have existed otherwise

b)

the ownership or occupation of land or buildings

c)

the carrying on of any trade or profession

d)

the ownership, possession or use of fire arms (other than sporting guns), mechanically propelled vehicles, craft designed to travel through air or space, hovercraft, watercraft or animals of a dangerous species

damage to property owned or held in trust by any director or Employee or any member of the family of such director or Employee

iii) liability more specifically insured under any other insurance iv) legal liability for accidental death of or accidental Personal Injury to any member of the family of any director or Employee or to any Employee of any director or Employee or any member of the family of such director or Employee b)

any person indemnified under this Extension shall as though he were the Insured observe, fulfil and be subject to the terms, limitations and conditions of this Policy

c)

the Insurers shall not be liable under this Extension unless the Insurers have the sole conduct and control of all claims.

Consumer Protection Act 1987 – Legal Defence Costs 10. The Insurers will indemnify the Insured or at the request of the Insured any director or Employee of the Insured against legal costs and expenses incurred in the defence of any criminal proceedings brought for a breach of Part II of the Consumer Protection Act 1987 or any regulations made thereunder committed or alleged to have been committed during the Period of Insurance including legal costs and expenses incurred with the consent of the Insurers in an appeal against conviction arising from such proceedings. Provided always that:

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a)

the criminal proceedings relate to an offence committed in the course of the Insured's Business as within defined

b)

this Extension shall apply only to proceedings brought in Great Britain, Northern Ireland, the Isle of Man or the Channel Islands

c)

the Insurers shall not be liable under this Extension:

APPENDIX

i)

where the Insured, director or Employee is insured by any other policy of insurance

ii)

where the criminal proceedings are in respect of any deliberate or intentional criminal act or omission of the Insured, director or Employee

iii) in respect of legal costs and expenses which the Insured, director or Employee may be ordered to pay by a court of Criminal Jurisdiction in respect of the deliberate or intentional criminal act or omission of the Insured, director or Employee iv) in respect of fines or penalties v)

for the cost of any investigation or inquiry other than a solicitor's investigation restricted to criminal proceedings as above defined

vi) unless the Insurers have the sole conduct and control of all claims d)

the Insured, director or Employee shall give to the Insurers immediate notice of any summons or other process served upon the Insured, director or Employee and of any event that may give rise to proceedings against the Insured, director or Employee

e)

the liability of the Insurers under this Extension shall not exceed the sum of £250,000 (Two Hundred and Fifty Thousand Pounds) in any one Period of Insurance.

Contingent Motor Liability (Non-Owned Vehicles) 11. The Insurers will indemnify the Insured named in the Schedule and no other for the purpose of this Extension in respect of legal liability for accidental death of or accidental Personal Injury to any person and/or accidental loss of or accidental damage to material property as within defined arising out of the use of any motor vehicle not the property of nor provided by the Insured and being used in connection with the Business. Provided always that the Insurers shall not be liable under this Extension: a)

in respect of loss of or damage to such vehicle or to goods conveyed therein or thereon

b)

for accidental death of or accidental Personal Injury to any person and/or accidental loss of or accidental damage to material property arising while such vehicle is being driven by the Insured or by any

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person who to the knowledge of the Insured or his representative does not hold a licence to drive such vehicle unless such person has held and is not disqualified from holding or obtaining such a licence c)

in respect of liability more specifically insured under any other insurance

d)

in respect of liability arising outside Great Britain, Northern Ireland, the Channel Islands or the Isle of Man.

Provided always that: 1.

these Extensions are subject to the terms, limitations and conditions of the Policy insofar as they can apply

2.

the total liability of the Insurers to pay compensation shall not exceed the Limit(s) of Indemnity under Sections I and II of the Policy

Definitions The Business 1.

The Business shall include in addition to those activities specified in the Schedule: a)

maintenance of property and premises owned or occupied by the Insured

b)

the provision and management of canteen, social, sports and welfare organisations for the benefit of Employees of the Insured

c)

first aid, fire and ambulance services

d)

private work carried out within The Territorial Limits by an Employee of the Insured for any director or senior executive of the Insured

e)

participation in exhibitions within The Territorial Limits.

Personal Injury 2.

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Personal injury shall include illness.

APPENDIX

Employee 3.

Employee shall mean: a)

any person under a contract of service or apprenticeship with the Insured

b)

any labour master or labour only subcontractor or persons supplied by any of them

c)

any self employed person

d)

any person under a work experience scheme

e)

any person hired or borrowed by the Insured

working for the Insured in connection with the Business.

The Territorial Limits 4.

The Territorial Limits shall mean: Section I anywhere within the limits of Great Britain, Northern Ireland, the Channel Islands or the Isle of Man and including non manual work carried out during temporary visits anywhere in the world in connection with the Business of the Insured by directors and Employees normally resident in and travelling from Great Britain, Northern Ireland, the Channel Islands or the Isle of Man. Section II anywhere in the world in respect of Products supplied in or from Great Britain, Northern Ireland, the Channel Islands or the Isle of Man.

Products 5.

Products shall mean any commodities or goods or any thing (including packaging, containers and labels) sold, supplied, hired out, constructed, erected, installed, treated, repaired, serviced, processed, stored, handled, transported or disposed of by or on behalf of the Insured or any structure constructed, erected or installed or contract work executed by or on behalf of the Insured in the course of the Business of the Insured.

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Clauses Pollution Clause 1.

This Policy excludes all liability in respect of Pollution or Contamination other than caused by a sudden identifiable unintended and unexpected incident which takes place in its entirety at a specific time and place during the Period of Insurance. All Pollution or Contamination which arises out of one incident shall be deemed to have occurred at the time such incident takes place. For the purpose of this Clause ‘Pollution or Contamination’ shall be deemed to mean: a)

all pollution or contamination of buildings or other structures or of water or land or the atmosphere; and

b)

all loss or damage or Personal Injury directly or indirectly caused by such Pollution or Contamination.

Conditions Observance of Policy Terms 1.

The due observance of the terms, provisions, conditions and endorsements of this Policy by the Insured in so far as they relate to anything to be done or complied with by the Insured and the truth of the statements and answers and information supplied on or in connection with the said proposal shall be a condition precedent to any liability of the Insurers to make any payment under this Policy.

Notice of Claims 2.

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The Insured shall give notice in writing to the Insurers as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof. The Insured shall also on receiving verbal or written notice of any claim intimate or send same or a copy thereof immediately to the Insurers, and shall give all necessary information and assistance to enable the Insurers to deal with, settle or resist any claim as the Insurers may think fit. Such information and assistance shall be given without any delay, and so far as reasonably practicable, no alteration or

APPENDIX

repair shall be made to any way, machinery, appliance, plant or fitting after an accident shall have occurred in connection therewith until the Insurers shall have had an opportunity of examining the same.

Control of Claims 3.

The Insured shall not, except at his own cost, take any steps to compromise or settle any claim or admit liability without specific instructions in writing from the Insurers nor give any information or assistance to any person claiming against him, but the Insurers shall for so long as they shall so desire take the absolute conduct and control of all proceedings (including arbitrations) in respect of any claim for which the Insurers may be liable under this Policy, and may use the name of the Insured to enforce for the benefit of the Insurers any order made for costs or otherwise or to make or defend any claim for indemnity or damages against any third party or for any other purpose connected with this Policy.

Discharge of Liability 4.

The Insurers may at any time by the payment to or on behalf of the Insured of the maximum sum payable hereunder in respect of any one occurrence, or the balance of such maximum sum should any payments have already been made in respect of claims arising out of the same occurrence, or by the payment as aforesaid of the balance of the maximum sum payable hereunder in any one Period of Insurance should the same be less than either of the aforesaid amounts by reason of any payments made in connection with any previous claims together with the amount of any legal costs incurred prior to the time of such payment absolve themselves from any further liability whatsoever arising out of or in connection with such occurrences and if the sum payable in respect of any claim or claims occurring in connection with or arising out of any one source or original cause exceeds the sum payable under this Policy the Insured shall pay the excess and shall also pay such proportion of the legal costs payable to any claimants and/or incurred in the defence of any claim or claims in respect of such occurrences as such excess bears to the total sum payable in respect of such occurrence.

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Premium Adjustment 5.

If any part of the premium is calculated on estimates furnished by the Insured the Insured shall keep an accurate record containing all particulars relative thereto and shall at all times allow the Insurers to inspect such record. The Insured shall within one month from the expiry of each Period of Insurance furnish to the Insurers such particulars and information as the Insurers may require. The Premium for such period shall thereupon be adjusted and the difference paid by or allowed to the Insured as the case may be.

Other Insurances 6.

If at the time any claim arises under this Policy there be any other insurance covering the same liability the Insurers shall not be liable to pay or contribute more than its rateable proportion of any such claim and costs and expenses in connection therewith.

Cancellation 7.

The Insurers may cancel this Policy by sending thirty days notice by recorded delivery to the Insured at his last known address and in such event the Insured shall become entitled to a return of a proportionate part of the premium corresponding to the unexpired portion of the Period of Insurance.

Reasonable Care 8.

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The Insured shall exercise reasonable care that only competent Employees are employed and shall take all reasonable steps to prevent accidents and to comply with all statutory or other obligations and regulations imposed by any authority and shall maintain the premises and all ways, works, machinery and plant in sound condition. In the event of the discovery of any defect or danger the Insured shall forthwith cause such defect or danger to be made good or remedied and in the meantime shall cause such additional precautions to be taken as the circumstances may require.

APPENDIX

Arbitration 9.

If any difference shall arise as to the amount to be paid under this Policy (liability being otherwise admitted) such difference shall be referred to an arbitrator to be appointed by the parties in accordance with the statutory provisions in that behalf for the time being in force. Where any difference is by this condition to be referred to arbitration the making of an award shall be a condition precedent to any right of action against the Insurers.

Esiplan Default Clause 10. Reference to the payment of premium includes payment by monthly instalments. If the Insured pays by this method the Policy remains an annual contract and the date of the payment and the amount of instalments are governed by the terms of the credit agreement. If an instalment is not received by the due date then subject to the Consumer Credit Act 1974 (if applicable) the credit agreement and the Policy will be cancelled immediately.

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Public and Products Liability Policy 1 Policy Number

Schedule

Date Issued

Continuation

First and Annual Premiums are subject to adjustment based on actual figures declared.

Table of Cover Section

Description

Limits of Indemnity

I

Public Liability

£

II

Products Liability

£

The liability of the insurers for all compensation payable in respect of all Pollution and Contamination which is deemed to have occurred during the Period of Insurance shall not exceed £ in the aggregate. Provided always that the total liability of the Insurers to pay compensation shall not exceed the Limit(s) of Indemnity under Sections I and II of the Policy.

N E M I C E P S

Endorsements

The Policy is subject to the endorsements shown below:

Reproduced with the kind permission of Eagle Star Insurance Company Ltd.

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APPENDIX

Public Liability Indemnity Policy – 2 Whereas The Insured named in The Schedule hereto and carrying on The Business therein described and no other for the purposes of this indemnity has by a proposal and particulars in writing (which The Insured has agreed shall be the basis of this contract and shall be held to be incorporated herein) applied to Eagle Star Insurance Company Limited (hereinafter called The Company) for an indemnity in the terms hereinafter mentioned. In consideration of the payment to The Company of the first premium stated in The Schedule The Company agrees to indemnify The Insured (subject to the terms, limitations and conditions herein contained) during the period stated in The Schedule and during any subsequent period for which The Company shall have accepted the premium required for renewal of this policy in respect of all sums which The Insured shall become legally liable to pay as compensation for:

Section I – Public Liability a)

accidental death of or accidental Personal Injury to any person other than an Employee where such death or Personal Injury arises out of and in the course of the employment

b)

accidental loss of or accidental damage to material property

c)

accidental obstruction, accidental trespass, accidental nuisance or accidental interference with pedestrian, road, rail, air or waterborne traffic occurring during the currency of this policy within The Territorial Limits in connection with The Business of The Insured.

The liability of The company for all compensation payable by The Insured under this section to any claimant or number of claimants in respect of any one occurrence or all occurrences of a series arising out of one original cause shall not exceed the Limit(s) of Indemnity.

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Exceptions to section I The indemnity granted by this section of the policy shall not apply to or include 1.

liability arising from the ownership or possession or use by or on behalf of The Insured of any mechanically propelled vehicle or mobile plant: a)

which is licensed for road use or

b)

for which compulsory motor insurance or security is required or

c)

which is more specifically insured.

Provided always that this exception shall not apply in respect of:

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i)

liability not more specifically insured under any other policy arising during the act of loading or unloading mechanically propelled vehicles or mobile plant or the bringing to or the taking away of a load from such vehicle or such plant.

ii)

the use of any mechanically propel led vehicle or mobile plant solely as a tool of trade unless more specifically insured or unless compulsory motor insurance or security is required.

2.

liability arising from the ownership or possession or use by or on behalf of The Insured of craft designed to travel through air or space, hovercraft or watercraft other than barges, motor launches and nonpowered craft used on inland waterways.

3.

liability arising from Products after they have ceased to be in the custody or control of The Insured other than food or beverages for consumption on the premises of The Insured or at any other premises where The Insured is carrying on The Business.

4.

loss of or damage to that part of any property upon which The Insured or any servant or agent of The Insured is or has been working where the loss or damage is the direct result of such work.

5.

loss of or damage to property belonging to The Insured or held in trust by or borrowed, rented, leased or hired for use by The Insured but this exception shall not apply to: a)

the personal effects (including vehicles and their contents) of directors Employees and visitors.

b)

buildings or their contents temporarily occupied by The Insured for the purpose of carrying out work therein or thereon.

c)

premises (or fixtures and fittings therein) hired, rented, leased or lent to The Insured other than such loss or damage if liability is assumed by The Insured under a tenancy or other agreement and would not have attached in the absence of such agreement.

APPENDIX

6.

the first £100 (One Hundred Pounds) of compensation payable for loss of or damage to material property in respect of any one occurrence or all occurrences of a series arising out of one original cause. Provided always that The Insured shall indemnify The company in respect of any such amount for which The company has made a payment.

Section II – Products Liability a)

accidental death of or accidental Personal Injury to any person other than an Employee where such death or Personal Injury arises out of and in the course of the employment

b)

accidental loss of or accidental damage to material property occurring within The Territorial Limits during the currency of this policy and caused by Products.

The liability of The company for all compensation payable by The Insured under this section in respect of all such death or such Personal Injury and such loss of or such damage to such material property occurring during any one period of insurance shall not exceed the Limit(s) of Indemnity.

Exceptions to section II The indemnity granted by this section of the policy shall not apply to or include: 1.

replacing, reinstating, rectifying, repairing, recalling or guaranteeing the performance of any Products.

2.

liability arising from any Products a)

b)

which at the time of the contract of sale or supply are knowingly i)

sold or supplied for use in craft designed to travel through air or space.

ii)

exported to the united States of America or Canada.

in the custody or control of The Insured.

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General exceptions The indemnity granted by this policy shall not apply to or include: 1.

liability in respect of liquidated damages or fines or penalties which attaches solely because of a contract or agreement.

2.

liability arising out of professional advice given by The Insured for a fee or in circumstances where a fee would normally be charged.

3.

any Associated or Subsidiary Company of The Insured or Branch Office or Representative of The Insured with Power of Attorney domiciled elsewhere than in Great Britain, Northern Ireland, the Channel Islands or the Isle of Man.

4.

any legal liability of whatsoever nature directly or indirectly caused by or contributed to by or arising from:

5.

a)

ionising radiations or contamination by radioactivity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel.

b)

the radioactive, toxic, explosive or other hazardous properties of any explosive nuclear assembly or nuclear component thereof.

any consequence, whether direct or indirect, of war, invasion, act of foreign enemy, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection or military or usurped power.

Extentions Legal costs 1.

In addition to the indemnity provided by sections land II of this policy The Company will indemnify The Insured in respect of all legal costs awarded to any claimant or incurred in the defence of any claim that is contested by or with the consent of The Company.

Additional benefit 2.

The Company will pay the costs incurred with its consent for: a)

138

representation at any Coroner’s Inquest or Fatal Inquiry in respect of any death

APPENDIX

b)

defending in any Court of Summary Jurisdiction any proceedings in respect of any act or omission causing or relating to any event which may be the subject of indemnity under this policy. Personal Representatives

3.

In the event of the death of The Insured the indemnity provided by this policy shall apply to any personal representative of The Insured in respect of liability incurred by The Insured. Provided always that such personal representative shall as though he were The Insured observe, fulfil and be subject to the terms, limitations and conditions of this policy.

Indemnity to directors and employees 4.

In the event of any claim in respect of which The Insured named in The Schedule hereto would be entitled to receive indemnity under this policy being brought or made against: a)

any director or Employee of The Insured

b)

any officer, member or Employee of The Insured’s social, sports or welfare organisations or first aid, fire or ambulance services The Company will indemnify such person if The Insured so requests against such claim and/or any costs, charges and expenses in respect thereof. Provided always that: i)

such person is not entitled to indemnity under any other insurance.

ii)

such person shall as though he were The Insured observe, fulfil and be subject to the terms, limitations and conditions of this policy.

iii) The Company shall not be liable under this Extension unless The Company has the sole conduct and control of all claims. (iv) the total liability of The Company under this Extension to pay compensation shall not exceed the Limit(s) of Indemnity.

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Health and Safety at Work, etc Act 1974 – Legal Defence Costs 5.

The Company will indemnify The Insured or at the request of The Insured any director or Employee of The Insured against legal costs and expenses incurred in the defence of any criminal proceedings brought for a breach of the Health and Safety at Work Act 1974 or the Health and Safety at Work (Northern Ireland) Order 1978 or any regulations made thereunder commiffed or alleged to have been commiffed during the period of insurance including legal costs and expenses incurred with the consent of The Company in an appeal against conviction arising from such proceedings. Provided always that The Company shall not be liable under this Extension for the payment of fines or penalties.

Indemnity to principal 6.

In the event of any claim in respect of which The Insured would be entitled to receive indemnity under this policy being brought or made against any Public or Local Authority or other Principal The Company will indemnify the said Public or Local Authority or other Principal against such claim and/or any costs, charges and expenses in respect thereof. Provided always that The Company shall not be liable under this Extension unless The Company has the sole conduct and control of all claims.

Defective Premises Act 1972 7.

The Company will indemnify The Insured against liability at law incurred by The Insured under Section 3 of the Defective Premises Act 1972 or Section 5 of the Defective Premises (Northern Ireland) Order 1975 in connection with premises which have been disposed of by The Insured. Provided always that The Company shall not be liable under this Extension

140

a)

for the cost of remedying any defect or alleged defect in the said premises.

b)

in respect of liability more specifically insured under any other insurance.

APPENDIX

Contingent Motor Liability (Non-Owned Vehicles) 8.

The Company will indemnify The Insured named in The Schedule and no other for the purpose of this Extension in respect of legal liability for accidental death of or accidental Personal Injury to any person and/or accidental loss of or accidental damage to material property as with in defined arising out of the use of any motor vehicle not the property of nor provided by The Insured and being used in connection with The Business. Provided always that The Company shall not be liable under this Extension a)

in respect of loss of or damage to such vehicle or to goods conveyed therein or thereon.

b)

for accidental death of or accidental Personal Injury to any person and/or accidental loss of or accidental damage to material property arising while such vehicle is being driven by The Insured or by any person who to the knowledge of The Insured or his representative does not hold a licence to drive such vehicle unless such person has held and is not disqualified from holding or obtaining such a licence.

c)

in respect of liability more specifically insured under any other insurance.

d)

in respect of liability arising outside The Territorial Limits.

Cross liabilities 9.

Where this policy is issued in the joint names of more than one party it will indemnity each party in the same manner as if a separate policy had been issued to each of them. Provided always that the total liability of The Company under this Extension to pay compensation shall not exceed the Limit(s) of Indemnity.

Personal liability overseas 10. This policy applies to the personal liability of any director or Employee of The Insured or any member of the family of such director or Employee whilst accompanying such director or Employee during temporary visits anywhere in the world in connection with The Business of The Insured.

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Provided always that: 1.

this Extension shall not apply to: a)

legal liability arising directly or indirectly from: i)

any agreement or contract unless liability would have existed otherwise.

ii)

the ownership or occupation of land or buildings.

iii) the carrying on of any trade or profession. iv) the ownership, possession or use of fire arms (other than sporting guns), mechanically propelled vehicles, craft designed to travel through air or space, hovercraft, watercraft or animals of a dangerous species. (b) damage to property owned or held in trust by any director or Employee or any member of the family of such director or Employee. (c) liability more specifically insured under any other insurance. (d) legal liability for accidental death of or accidental Personal Injury to any member of the family of any director or Employee or to any Employee of any director or Employee or any member of the family of such director or Employee. 2.

any person indemnified under this Extension shall as though he were The Insured observe, fulfil and be subject to the terms, limitations and conditions of this policy.

3.

The Company shall not be liable under this Extension unless The Company has the sole conduct and control of all claims.

4.

the total liability of The Company under this Extension to pay compensation shall not exceed the Limit(s) of Indemnity.

Consumer Protection Act 1987 – Legal Defence Costs 11. The Company will indemnify The Insured or at the request of The Insured any director or Employee of The Insured against legal costs and expenses incurred in the defence of any criminal proceedings brought for a breach of Part II of the Consumer Protection Act 1987 or any regulations made thereunder committed or alleged to have been committed during the Period of Insurance including legal costs and expenses incurred with the consent of The Company in an appeal against conviction arising from such proceedings.

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APPENDIX

Provided always that: 1.

the criminal proceedings relate to an offence committed in the course of The Insured’s Business as within defined.

2.

this extension shall apply only to proceedings brought in Great Britain, Northern Ireland, the Isle of Man or the Channel Islands.

3.

The Company shall not be liable under this extension: a)

where The Insured, director or Employee is insured by any other policy of insurance.

b)

where the criminal proceedings are in respect of any deliberate or intentional criminal act or omission of The Insured, director or Employee.

c)

in respect of legal costs and expenses which The Insured, director or Employee may be ordered to pay by a court of Criminal Jurisdiction in respect of the deliberate or intentional criminal act or omission of The Insured, director or Employee.

d)

in respect of fines or penalties.

e)

for the cost of any investigation or inquiry other than a solicitor’s investigation restricted to criminal proceedings as above defined.

f)

unless The Company has the sole conduct and control of all claims.

4.

The Insured, director or Employee shall give to The Company immediate notice of any summons or other process served upon The Insured, director or Employee and of any event that may give rise to proceedings against The Insured, director or Employee.

5.

the liability of The Company under this extension shall not not exceed the sum of £250,000 (Two Hundred and Fifty Thousand Pounds) in any one Period of Insurance. Provided always that these Extensions are subject to the terms, limitations and conditions of the policy insofar as they can apply.

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Definitions The business The Business shall include in addition to those activities specified in The Schedule. a)

maintenance of property and premises owned or occupied by The Insured.

b)

the provision and management of canteen, social, sports and welfare organisations for the benefit of Employees of The Insured.

c)

first aid, fire arid ambulance services.

d)

private work carried out within The Territorial Limits by an Employee of The Insured for any director or senior executive of The Insured.

e)

participation in exhibitions within The Territorial Limits.

Personal injury Personal Injury shall include illness.

Employee Employee shall mean:

144

a)

any person under a contract of service or apprenticeship with The Insured

b)

any labour master or labour only subcontractor or persons supplied by any of them

c)

any self employed person

d)

any person under a work experience scheme

e)

any person hired or borrowed by The Insured working for The Insured in connection with The Business.

APPENDIX

The Territorial Limits The Territorial Limits shall mean: Section I – anywhere within the limits of Great Britain, Northern Ireland, the Channel Islands or the Isle of Man and including non manual work carried out during temporary visits anywhere in the world in connection with The Business of The Insured by directors and Employees normally resident in and travelling from Great Britain, Northern Ireland, the Channel Islands or the Isle of Man. Section II – anywhere in the world in respect of Products supplied in or from Great Britain, Northern Ireland, the Channel Islands or the Isle of Man.

Products Products shall mean any commodities or goods or any thing (including packaging, containers and labels) sold, supplied, hired out, constructed, erected, installed, treated, repaired, serviced, processed, stored, handled, transported or disposed of by or on behalf of The Insured or any structure constructed, erected or installed or contract work executed by or on behalf of The Insured in the course of The Business of The Insured.

Memorandum Memo 1 This policy excludes all liability in respect of Pollution or Contamination other than caused by a sudden identifiable unintended and unexpected incident which takes place in its entirety at a specific time and place during the Period of Insurance. All Pollution or Contamination which arises out of one incident shall be deemed to have occurred at the time such incident takes place. The liability of The Company for all compensation payable in respect of all Pollution or Contamination which is deemed to have occurred during the Period of Insurance shall not exceed £1,000,000 (one million pounds) in the aggregate. Provided always that the total liability of The Company to pay compensation shall not exceed the Limit(s) of Indemnity under Sections land II of the policy.

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For the purpose of this Memorandum ‘Pollution or Contamination’ shall be deemed to mean: i)

all pollution or contamination of buildings or other structures or of water or land or the atmosphere; and

ii)

all loss or damage or Personal Injury directly or indirectly caused by such Pollution or Contamination.

Conditions Observance of policy terms 1.

The due observance of the terms, provisions, conditions and endorsements of this policy by The Insured in so far as they relate to anything to be done or complied with by The Insured and the truth of the statements and answers and information supplied on or in connection with the said proposal shall be a condition precedent to any liability of The company to make any payment under this policy.

Notice of claims 2.

The Insured shall give notice in writing to The Company as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof. The Insured shall also on receiving verbal or written notice of any claim intimate or send same or a copy thereof immediately to The Company, and shall give all necessary information and assistance to enable The Company to deal with, settle or resist any claim as The Company may think fit. Such information and assistance shall be given without any delay, and so far as reasonably practicable, no alteration or repair shall be made to any way, machinery, appliance, plant or fitting after an accident shall have occurred in connection therewith until The Company shall have had an opportunity of examining the same.

Control of claims 3.

146

The Insured shall not, except at his own cost, take any steps to compromise or settle any claim or admit liability without specific instructions in writing from The Company nor give any information or assistance to any person claiming against him, but The Company shall

APPENDIX

for so long as they shall so desire take the absolute conduct and control of all proceedings (including arbitrations) in respect of any claim for which The Company may be liable under this policy, and may use the name of The Insured to enforce for the benefit of The Company any order made for costs or otherwise or to make or defend any claim for indemnity or damages against any third party or for any other purpose connected with this policy.

Discharge of liability 4.

The Company may at any time by the payment to or on behalf of The Insured of the maximum sum payable hereunder in respect of any one occurrence, or the balance of such maximum sum should any payments have already been made in respect of claims arising out of the same occurrence, or by the payment as aforesaid of the balance of the maximum sum payable hereunder in any one period of insurance should the same be less than either of the aforesaid amounts by reason of any payments made in connection with any previous claims together with the amount of any law costs incurred prior to the time of such payment absolve itself from any further liability whatsoever arising out of or in connection with such occurrences and if the sum payable in respect of any claim or claims occurring in connection with or arising out of any one source or original cause exceeds the sum payable under this policy The Insured shall pay the excess and shall also pay such proportion of the law costs payable to any claimants and/or incurred in the defence of any claim or claims in respect of such occurrence as such excess bears to the total sum payable in respect of such occurrence.

Premium adjustment 5.

If any part of the premium is calculated on estimates furnished by The Insured The Insured shall keep an accurate record containing all particulars relative thereto and shall at all times allow The Company to inspect such record. The Insured shall within one month from the expiry of each Period of Insurance furnish to The Company such particulars and information as The Company may require. The premium for such period shall thereupon be adjusted and the difference paid by or allowed to The Insured as the case may be.

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Other insurances 6.

If at the time any claim arises under this policy there be any other insurance covering the same liability The Company shall not be liable to pay or contribute more than its rateable proportion of any such claim and costs and expenses in connection therewith.

Cancellation 7.

The Company may cancel this policy by sending thirty days’ notice by recorded delivery to The Insured at his last known address and in such event The Insured shall become entitled to the return of a proportionate part of the premium corresponding to the unexpired Period of insurance.

Reasonable care 8.

The Insured shall exercise reasonable care that only competent Employees are employed and shall take all reasonable steps to prevent accidents and to comply with all statutory or other obligations and regulations imposed by any authority and shall maintain the premises and all ways, works, machinery and plant in sound condition. In the event of the discovery of any defect or danger The Insured shall forthwith cause such defect or danger to be made good or remedied and in the meantime shall cause such additional precautions to be taken as the circumstances may require.

Arbitration 9.

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If any difference shall arise as to the amount to be paid under this policy (liability being otherwise admitted) such difference shall be referred to an arbitrator to be appointed by the parties in accordance with the statutory provisions in that behalf for the time being in force. Where any difference is by this condition to be referred to arbitration the making of an award shall be a condition precedent to any right of action against The Company.

APPENDIX

Esiplan default clause 10. Reference to the payment of premium includes payment by monthly instalments. If the Insured pays by this method the policy remains an annual contract and the date of payment and the amount of instalments are governed by the terms of the credit agreement. If an instalment is not received by the due date then subject to the Consumer Credit Act 1974 (if applicable) the credit agreement and the policy will be cancelled immediately.

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Public and Products Liability Policy 2

Schedule

Policy Number Address The business Agency

Branch

Period of Insurance

From:

(both dates inclusive)

To:

First Premium £

Renewal Premium £ Renewal Date

Limits of Indemnity – SECTION I Public Liability £

N E M I C E P S SECTION II Products Liability £

Date of Policy

Examined

Reproduced with the kind permission of Eagle Star Insurance Company Ltd.

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APPENDIX

List of Cases A & B Painters V Economic, 1983.............................................31, 67 Afzal V Ford Motor Co., 1994 .........................................................88 Alcock V CC of South Yorkshire, 1992 ...........................................84 AMF International V Magnet Bowling, 1968...................................68 Blyth V Birmingham Waterworks Co., 1868 ...................................14 Bradley V Eagle Star, 1989 ..............................................................54 Bransby-Williams V Baltic, 1922 .....................................................83 Biesheuvel V Birrell, 1998.......................................................10, 100 Century Insurance Co. V Northern Ireland RTB, 1942 ..................22 De Souza V Home & Overseas Insurance Co., 1990.......................31 Dominion of Canada General V MacCulloch, 1991 ........................35 Donoghue V Stephenson, 1933 ......................................3, 14, 50, 52 Frost & Ors V CC South Yorkshire, 1998................................73, 114 Gale V Motor Union, 1930..............................................................43 Gale V Superdrug Stores Ltd, 1996.................................................70 Goodes V E Sussex CC, 1998 ..........................................................82 Gourlay V BTC, 1957 ......................................................................98 Groom V Crocker, 1937..................................................................70 Janata Bank V Ali, 1983...................................................................57 Lancs CC V Municipal Mutual, 1996...............................................97 Langley V Draya & Anr, 1998 ..........................................................10 Lister V Romford Ice Co., 1957 ......................................................57 Lloyd V Grace Smith & Co., 1912 ...................................................22 Loyst V General Accident, 1930 .....................................................43 Mansfield V Weetabix, 1997 ...........................................................20 Monk V Warbey, 1934.......................................................................7 Newton V Edgerley, 1959 ...............................................................18 Nichols V Marsland, 1876 ...............................................................25 Page V Smith, 1994 .........................................................................32 Pan Atlantic V Pinetop, 1994 ..........................................................30 Re Polemis, 1921 ............................................................................14 Post Office V Norwich Union, 1963 ...............................................54 Richardson V Pitt Stanley, 1994 ..................................................7, 17 Rondell V Worsley, 1967.................................................................58

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Stokes V GKN, 1968 ...........................................................22, 57, 84 Treadaway V CC West Midlands, 1994............................................97 Wadey V Surrey CC, 1999...............................................................99 Wagonmound No.1, 1961...............................................................14 Wagonmound No.2, 1963...............................................................15 Ward Newalls Insulation, 1998 .......................................................98 Wells V Wells, 1998.........................................................76, 100, 115 Arthur White V Tarmac, 1968.....................................................7, 51

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Table of Statutes Administration of Justice Act, 1969 ................................................98 Animals Act, 1971...........................................................................16 Arbitration Act, 1951 ......................................................................95 Companies Act, 1989......................................................................27 Consumer Protection Act, 1987 .....................................8, 26, 44, 51 Congenital Disabilities (Civil Liabilities) Act, 1976.........................18 Crown Proceedings Act, 1947 ........................................................20 Defective Premises Act, 1972 .........................................................43 Employers Liability (Compulsory Insurance) Act, 1969.................17 Finance Act, 1985 .........................................................................100 Fires Prevention (Metropolis) Act, 1774.........................................24 Health and Safety at Work Act, 1975 ..............................................43 Law Reform (Contributory Negligence) Act, 1945.........................26 Law Reform (Personal Injuries) Act, 1948......................................99 Legal Aid Acts, 1951 .......................................................................11 Limitation Act, 1980 .......................................................................26 Occupiers Liability Act, 1957 .........................................................17 Road Traffic (NHS Charges) Bill, 1999............................................99 Sale of Goods Act, 1893..................................................................51 Sale of Goods Act, 1979..................................................................51 Social Security Act, 1989 ................................................................98 Third Parties (Rights Against Insurers) Act, 1931.........................107 Unfair Contract Terms Act, 1976 ................................................8, 51

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Index

A Accident – definition ......................................................................31 Accidental: alternative words ..................................................................32 death .....................................................................................31 personal injury ................................................................31, 32 property damage...................................................................34 Accountants ....................................................................................59 Act of God.................................................................................25, 73 Actuarial methods of estimating ...................................................110 Adequacy of limit of indemnity ......................................................37 Admissions of liability.....................................................................70 Agent – principal ............................................................................23 Aggravated damages .......................................................................96 Aircraft ............................................................................................41 Alternative dispute resolution ..................................................85, 94 Arbitration.................................................................................86, 94 Clause....................................................................................46 Architects........................................................................................59

B Basis of estimating ........................................................................109 Bill of quantities ..............................................................................68 Breach of duty.................................................................................14

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INDEX

C Can insurers cope .........................................................................117 Cattle trespass.................................................................................16 Caused – products ..........................................................................52 Child: parent liabilities.....................................................................18 compensation procedure......................................................18 Changes in: legal procedure ...................................................................116 procedure..............................................................................27 Civil right of action – statutory cases .............................................17 Civil wrongs....................................................................................14 Claims: cost........................................................................................67 cost outsourcing ...................................................................79 experience ............................................................................31 liability: under policy..........................................................................66 to third party.........................................................................66 PL ..........................................................................................66 settlement costs ..................................................................112 Claims made: products ................................................................................53 professional indemnity..........................................................60 Claw back .......................................................................................98 Common law liability........................................................................6 increase in liabilities..............................................................10 Compensation.................................................................................95 Compulsory motor insurance .....................................................7, 17 Concealment.............................................................................30, 67 Conditional fees ..............................................................................91 Conditions: Contract – restrictions ............................................................7 contribution clause ...............................................................46 PL policy ...............................................................................45 Contemptuous damages .................................................................96 Contingency liability – motor insurance.........................................44

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Contract ..........................................................................................50 Contractors – independent.............................................................23 Contractual conditions ...................................................................69 Contractual liability...........................................................................7 indemnity and hold harmless clauses ...................................11 Contributory negligence.................................................................26 contrast with volenti .............................................................25 Co-operation – in investigation.....................................................106 Corporations .............................................................................19, 22 Cost– liability cases...........................................................................9 Costs: and cost sharing ..................................................................106 claims settlement ................................................................112 defence............................................................................35, 36 legal.....................................................................................100 litigation ..................................................................................8 solicitors..............................................................................100 Course of conduct ..........................................................................69 Criminal cases – costs.....................................................................43 Crown .............................................................................................20 Custody and control – products .....................................................54

D Damage ...........................................................................................34 negligence .............................................................................14 property ..................................................................................1 Damages............................................................................1, 9, 96, 98 aggravated .............................................................................96 exemplary .............................................................................97 general...................................................................................96 increases in .........................................................................115 levels of ...............................................................................100 personal injury ........................................................................9 Damnum .........................................................................................15 Decision – liability ..........................................................................70 Defamation .......................................................................................6

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INDEX

Defective premises – cover.............................................................43 Defences – to an action ............................................................24, 72 Definitions – policy form................................................................44 Denial – defence .......................................................................24, 74 Directors and Officers liability........................................................62 duties and responsibilities.....................................................62 and employers cover.............................................................43 Disbursements ..............................................................................101 Discharges.......................................................................................77 Disease ............................................................................................33 Doctors ...........................................................................................75

E Economic loss .................................................................................34 Effects on liability insurers ...........................................................117 Enquiries – public ...........................................................................36 Emergency services ........................................................................44 Employee – definition.....................................................................44 Employers Liability (Compulsory Insurance) Act, 1969.............7, 17 Employers liability – policy ..............................................................2 Estimating .....................................................................................109 Evidence – expert ...........................................................................89 Exceptions – PL policy ...................................................................40 to products cover..................................................................54 Excess .............................................................................................42 Expansion of liability ......................................................................10 Expenses – medical ........................................................................99 Extension of cover ..........................................................................43 professional liability ..............................................................61 Expert evidence..............................................................................89

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F Fact – questions of ..........................................................................74 Facts – consideration of ..................................................................68 Facultative reinsurance .................................................................108 False imprisonment ........................................................................84 Fast track courts..............................................................................89 Fees – conditional ...........................................................................91 Fines and penalties .........................................................................42 Foreign subsidiaries ........................................................................42 Forensic accountant........................................................................76 Future developments ....................................................................114

G General damages.............................................................................96 Good faith – utmost ........................................................................30

H Hearsay evidence ............................................................................68 High court cases .......................................................................86, 89 Highway authorities........................................................................82 Hillsborough disaster ......................................................................73 Hold harmless clauses.........................................................11, 51, 69 Hospitals ...................................................................................84, 85

I IBNR claims...................................................................................110 Illness ..................................................................................32, 33, 44 Immunity – diplomatic ...................................................................19 Increases in damages ....................................................................115 Independent contractors ................................................................23

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INDEX

Indemnity: adequacy of limit...................................................................37 clauses...................................................................................51 limits of ...............................................................35, 44, 53, 60 to principal............................................................................43 Inevitable accident .........................................................................24 Injuria..............................................................................................15 Injunction .........................................................................................8 Injury ..............................................................................................14 personal ................................................................................32 physical and mental ..............................................................32 Inquest – representation.................................................................36 Insurance: directors and officers ............................................................62 joint names............................................................................43 Insurer – lead ................................................................................105 Insurers – layered..........................................................................105 Interest............................................................................................98 Investigation ...................................................................................67

J Joint names – insurance..................................................................43

L Layered insurance .........................................................................105 Legal Aid .........................................................................................91 Legal costs.....................................................................................101 Legal fees – overall........................................................................102 Levels of damages .........................................................................100 Liabilities – common law increase..................................................10 Liability .........................................................................................1, 6 admissions of.........................................................................70 and the law......................................................................14, 22 cases, rising cost .....................................................................9

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common law ...........................................................................6 consequences......................................................................1, 8 contractual ..............................................................................7 hold harmless clauses ...........................................................69 decision as to ........................................................................70 expansion of......................................................2, 3, 10, 11, 14 how established ......................................................................8 insurers, effects of changes on............................................117 legal.........................................................................................1 mitigation of effects ................................................................2 statutory ................................................................6, 10, 16, 51 to third party.........................................................................66 under policy..........................................................................66 what is it .................................................................................1 withdrawal of admission .......................................................70 Limitation..................................................................................26, 73 Litigation ...................................................................8, 85, 86, 87, 88 cost..........................................................................................8 Local authorities .......................................................................82, 83

M Market capacity.............................................................................108 Mediation ....................................................................................8, 95 Medical expenses............................................................................99

N Negotiation ...............................................................................85, 94 New courts .....................................................................................89 NHS charges – recovery of .............................................................99 Nominal damages............................................................................96 Nuisance .........................................................................................15 difficulties in PL insurance....................................................15 essentials of...........................................................................15 types of .................................................................................15

160

INDEX

O Offers ..............................................................................................77 to settle .................................................................................90 Outsourcing ....................................................................................78 advantages.............................................................................79 problems with.......................................................................79 Over estimating.............................................................................111

P Parents – liability for children.........................................................18 Parties to an action .........................................................................18 Partnerships ....................................................................................19 Payments into court..................................................................87, 90 Personal indemnity – costs .............................................................43 directors and employees.......................................................43 Personal injury ................................................................................32 claims ....................................................................................75 valuation of ...........................................................................76 damages ..................................................................................9 Persons of unsound mind ...............................................................20 Physical injury.................................................................................32 PL – see under Public Liability Police authorities ............................................................................83 Policy: of indemnity..........................................................................35 public liability .......................................................................40 limit of indemnity .....................................................35, 53, 60 pollution clause.....................................................................45 wordings ...............................................................................31 Position of schedules insurers ......................................................104 Pre-action protocols........................................................................90 Preamble .........................................................................................35 Premises risk ...................................................................................40 Premium adjustment.......................................................................46 increases..............................................................................117

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INSURANCE

Primary layer: insurer .................................................................................105 paying limit .........................................................................107 Principal: and agent...............................................................................23 and independent contractor .................................................23 Procedure: current legal ..........................................................................86 pleadings ...............................................................................87 Product recall..................................................................................54 Products: action of ................................................................................52 defects in ..............................................................................52 Products liability .............................................................................50 common law .........................................................................50 contract .................................................................................50 Products liability insurance ............................................................52 claims made ..........................................................................53 exceptions.............................................................................54 limit of indemnity .................................................................53 single accident limit ..............................................................53 US and Canada ......................................................................54 Professional duty – breach of..........................................................56 Professional – employed .................................................................57 Professional indemnity ...............................................................3, 56 excluded................................................................................42 Professional indemnity insurance ...................................................59 claims made ..........................................................................60 limits of indemnity ................................................................60 notification............................................................................61 policy conditions ..................................................................61 policy cover ..........................................................................59 QC clause ..............................................................................61 Professional negligence ..................................................................56 how arises .............................................................................57 Professional persons – duties to keep up to date ...........................56 Professions ......................................................................................56

162

INDEX

Property ..........................................................................................34 in custody or control.............................................................34 worked on.............................................................................41 Property damage claims..................................................................74 Protocols – pre-action.....................................................................90 Public enquiries ..............................................................................36 Public liability – claims ...................................................................66 cover .....................................................................................30 insurance.............................................................................2, 7 layers .....................................................................................35 policy – App. limit of indemnity .....................................................35, 53, 60 pollution clause.....................................................................45 wordings ...............................................................................40 risks, large, rating..................................................................47 Punitive damages ............................................................................97

Q QC clause........................................................................................61 Queens Councel – fees of .............................................................101 Question of fact ..............................................................................74 law.........................................................................................74

R Raising of retention’s ....................................................................108 Rating..............................................................................................46 Recall of products...........................................................................54 Reinsurance ..................................................................................107 facultative............................................................................108 recoveries............................................................................111 Reinsurance ..................................................................................107 reluctance ...........................................................................108 Relationship – scheduled insurers ................................................106 Replacing or repairing products.....................................................54

163

PUBLIC

LIABILITY

INSURANCE

Representation – inquest ................................................................36 Reserving ......................................................................................111 Responsibilities – directors and officers.........................................62 Restrictions – in scope of cover ...................................................117 Revenue ........................................................................................117 Rubbish collection ..........................................................................82

S Scheduled policies ........................................................................104 Settlement – after breach of duty ...................................................76 Settlements – structured.................................................................99 Sharing arrangements .....................................................................34 Sickness...........................................................................................33 Slander – extension of professional policy .....................................61 Slipping...........................................................................................84 Small claims court.....................................................................88, 89 Social security benefits ...................................................................98 and the claw back ...........................................................98, 99 Solicitors: costs ....................................................................................100 as outsources.........................................................................78 and professional negligence..................................................58 Spacecraft .......................................................................................41 Special damages ..............................................................................96 and interest ...........................................................................98 Special risks ....................................................................................82 Spreading the risk .........................................................................104 Statement of claim ..........................................................................86 State of the art defence...................................................................52 Status – of employed professional ..................................................57 Statutory authority..........................................................................25 Statutory liability...................................................................6, 10, 16 and civil right of action.....................................................7, 17 sale of goods..........................................................................51 Stress...............................................................................................33 cases....................................................................................114

164

INDEX

Striking out .....................................................................................27 Structured settlements....................................................................99 Subrogation – and negligent employees ...................................57, 61 and insurers in property claims ............................................75 Subsidiaries – foreign......................................................................35 Supermarkets ..................................................................................84 Supervision of insurers .................................................................117 Suppliers of goods – liability of ......................................................50 protection of .........................................................................51

T Terminations .................................................................................111 Territorial limits ..............................................................................44 Third party........................................................................................6 commutation of decision ......................................................70 Third party claims...........................................................................60 Timetables – court ..........................................................................88 Tort: law of ......................................................................................6 definition of ............................................................................6 Treasury ........................................................................................117 Treaty reinsurance ........................................................................107 Trespass ..........................................................................................16 against the person.................................................................16 cattle .....................................................................................16 to goods ................................................................................16 to land ...................................................................................16 Trials ...............................................................................................87 Tripping ..........................................................................................84 Turnover .........................................................................................47

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U Underwriters: and the law..............................................................................7 and the effects of Woolf ........................................................27 consideration ........................................................................40 Unforseeability................................................................................25 Universities .....................................................................................85 Unsound mind – persons of ...........................................................20 Upper layers..................................................................................105 Utmost good faith ...........................................................................30

V Valuation of personal injury claims ................................................76 Vendor and purchaser.....................................................................50 Volenti non fit injuria................................................................24, 72

W Water craft ......................................................................................41 Withdrawal – of admissions of liability ...........................................70 Witnesses – interviews and statements ..........................................68 Woolf, Lord – recommendations ........................................70, 75, 88 Writ.................................................................................................86 Wrongful arrest.........................................................................83, 84

166