Breaking the liability insurance mold

With the pending Consumer Protection Act (CPA) and its impact on the public liability insurance market, it is time for savvy insurance brokers to introduce their clients to the concept of broad-form liability coverage.

The vast majority of SME commercial policyholders have only ever been exposed to the now defunct Multimark III (MM) type policy. This begs the question: "Why change to broad-form?" The increased liability risks companies will face with the introduction of the CPA provides enough motivation to consider the broader product; but the answer crystallises when illuminating the disparities between MM and broad-form. While there are many variations of the coverage, some of the elements included in most covers are compared below.

The Non-Accidental Trigger

MM policy
In order for the MM policy to respond, the insured has to establish that the third-party loss occurred as a result of an "accident". The word "accident" appears in the operative clause and means that the onus of proof lies with the insured.

Broad-form policy
The broad-form policy responds to actions where the insured is legally liable for damages or injuries. The cover is referred to as "non-accidental". The word "accident" does not appear and means that if the insurers wish to repudiate based on the fact that an intentional act caused the loss, the onus of proof rests with them, rather than the insured.

Conclusion

There can be many different legal interpretations of the word "accident". Avoiding the use of such an operative clause can be of great value to the prudent broker. Broad-form provides a wider trigger that is less likely to lead to a claims dispute. This can be of great benefit to the insured when submitting a claim.

Definition of Property Damage

MM policy
In the MM wording, damage is defined only as "loss of or damage to tangible property".

Broad-form policy
In the broad-form policy the definition is wider and includes:
i. Actual damage to property
ii. Loss of possession or control of property (as may be the case if the property is not damaged; but is simply inaccessible)
iii. Loss of use (as in ii above) iv. Prevention of access

Conclusion

Broad-form provides an extended definition of damage meaning the property need not be physically damaged, but merely unable to be used. This could be a consequential loss where no actual damage has occurred.

Definition of Injury

MM policy
MM provides for death, injury or illness to a person.

Broad-form policy
Broad-form defines injury as:
i. Bodily injury
ii. Death
iii. Illness
iv. Disease v. Mental anguish

Conclusion

Mental anguish is the differentiator here. Many insurers do not view pain and suffering and loss of amenities as "bodily injury". Yet, each year around 60% of the total benefits paid out by the Road Accident Fund are related to non-pecuniary injuries such as pain and suffering and loss of amenities.

Territorial Limits

MM policy
MM restricts coverage to RSA, Namibia, Botswana, Lesotho, Swaziland, Zimbabwe and Malawi.

Broad-form policy
Broad-form provides worldwide cover.

Conclusion

Many companies trade and undertake contracts beyond the MM borders. Broad-form moves through all territories with the insured's business.

Pollution

MM policy
MM covers sudden and accidental seepage, pollution or contamination.

Broad-form policy
Broad-form covers sudden and unforeseen pollution. Pollution is defined as:
i. Release of liquids, gases, contaminants or pollutants
ii. Smells iii. Noise, light, vibrations, electricity
iv. Temperature changes

Conclusion

MM cover may have been adequate in the past but disputes over what is accidental often negated the cover. Many insureds are also faced with nuisance-type lawsuits, especially in respect of noise and light pollution, as is the case with restaurants and nightclubs in residential areas. Broad-form provides more comprehensive pollution cover.

Products Liability and Defective Workmanship

MM policy
MM excludes losses caused by defective design.

Broad-form policy
Broad-form covers losses caused by products designed, manufactured, constructed, installed, repaired and altered by the insured.

Conclusion

Broad-form displaces the argument over whether a claim is covered due to design versus manufacturing faults.

Negligent Advice

MM policy
Some MM policies provide limited Gratuitous Advice cover as part of the product liability section.

Broad-form policy
Broad-form provides specific negligent advice cover supplied with products and work performed. The cover can also be extended to cover full errors and omissions.

Conclusion

With the advent of Consumer Protection Legislation governing advice rendered, wider E&O type covers and advice protection are becoming critical.

Even in the absence of legislative changes and increased litigation, it would be remiss not to consider the broadest possible insurance solution for clients. Innumerable extensions are available to the standard broad-form policy: from custody and control to medical malpractice and inefficacy. The net on broad-form is wide enough to cover just about any scenario.