Liability insurance: is the cure worse than the disease?

Anusha’s head was spinning. Time slowed as her world turned round and round. Many of us reach that stage where our lives are out of control, and now, as she tried to reach out to her friends and colleagues, they all just stared back at her in dumbfounded shock.

Her head began to ache. The throbbing was like a staircase smashing against her petite head, radiating ripples of pain that echoed back and forth. Finally, the staircase grew silent, leaving her to deal with the pain that now emanated from both her head and her left ankle. Looking up at the small crowd of witnesses staring at her from the top of the staircase, she spared a moment to ponder her dignity. As much as she wished that her descent would have followed a certain measure of serpentine grace, everyone had witnessed a descent that had the finesse of a bulldog chewing oats.

“Enjoyed your trip?” Jimmy teased. He had always been full of it. Once again, Anusha wanted to reach out. This time, she wanted to reach out specifically to Jimmy, to place her hands around his neck and squeeze it until he had reached blessed union with his ancestors. She quickly regained her composure and, toning down her inner homicidal desires, managed to murmur darkly, “you are going to pay for this.”

Who is liable?

Sounds like a soapy doesn’t it? Given that this is based on a true story, it might be worth asking who did wind up paying for this accident. Anusha was a contractor, subcontracted to a major bank by an information technology company. The fact of the matter is that the cleaning staff at the bank’s premises failed to install any warning signs that would draw attention to the wet and slippery floor, and that’s when Anusha fell.

She was rushed off to a private hospital where she received treatment, which she paid for. Armed with bills, bandages and a plaintiff tone of voice, Anusha approached the bank for compensation. The bank’s response made it clear that money does not grow on trees and that she should look elsewhere as they do not believe that they are liable.

Anusha did the next logical thing and approached her employer. The employer submitted the details for compensation to the relevant authorities in terms of the Compensation for Occupation Injuries and Diseases Act (COIDA). This too did not unlock the floodgates of compensation. For some reason, COIDA felt that this incident’s expensive private healthcare fell outside of their obligations. Running short of options, Anusha’s employer finally turned to its insurer for compensation.

Knocking on the insurer’s door

You know how insurers are. They are also full of it. With the usual veneer of politeness, covering a mountain of legal jargon, they clearly did not want to entertain this claim.

Now, as much as it is tempting to dismiss liability insurance claims as a hit and miss affair, it is worth understanding why the insurer rejected the claim.

Ironically, the claim was rejected because the insured, Anusha’s employer, had done nothing wrong. Liability policies only cover the insured’s legal liability to pay compensation. In this case it was the bank, not the insured, which had been negligent, thereby incurring the liability.

It is also important to note that the bank’s contract with its suppliers states that, should any of the supplier’s staff be injured on the bank’s premises, the supplier, and not the bank, must compensate the injured employee. In other words, the bank does something wrong and the supplier, Anusha’s employer, is held liable and has to pay.

This kind of clause is by no means isolated to banks, and has become quite popular among large corporates seeking to limit their risks. Fortunately, some of the more innovative underwriters solve this problem by including a Host Employer’s Liability clause in the supplier’s broadform liability policy. Make sure your client is correctly and fully covered.