The challenges of liability insurance
While most business owners are aware of the importance of insurance cover to protect their businesses, their insurance spend is all too frequently devoted to material damage insurance (providing protection against losses by crime, fire, storms etc) at the expense of liability insurance. New legislation and growing consumerism, however, is likely to cause business owners to reconsider their liability insurance.
This is the view of Quinten Matthew (pictured right), Head of Specialist Business at Santam, the country’s largest short-term insurance company, who says that responsibility for liability insurance arises out of the “duty of care” that business owners owe to anyone with whom they are transacting business, including manufacturers, importers, distributors and suppliers of goods.
“Failure to observe this duty of care may render the business owner guilty of negligence and liable to pay damages to a third party. Frequently, the effect that payments for damages may have on the financial circumstances of a business is underestimated, even leading to bankruptcy in some cases,” he says.
Matthew notes that new legislation, in the form of the National Consumer Protection Bill, is currently being drafted to further protect consumers. Once promulgated, it will increase the duty of care on the producer or supplier and therefore increase the responsibility on business owners to ensure the safety of their products.
“Growing consumerism has already resulted in an increasing number of court awards in favour of consumers who are found to have suffered as a result of a lack of care on the part of the company producing or supplying a product. With consumers becoming ever more aware of their legal rights, particularly through access to modern communication channels, it is becoming increasingly more important for business owners, whether large or small, to have adequate liability insurance. The introduction of the Legal Aid Board and the option of various legal expenses insurance covers also mean that members of the public are ever more likely to pursue legal actions where previously they may have been disinclined to do so because of the difficulties and costs involved,” he says.
Santam and its Underwriting Managers that specialise in liability insurance provide a wide variety of liability covers. These include public liability, products liability, product recall, professional indemnity, directors’ and officers’ liability, employment practices liability and employers’ liability. Santam distributes its products through intermediaries, who will not only provide advice in terms of exposure but also source adequate cover at an affordable price.
In terms of what is the appropriate liability cover, Matthew notes as follows: “One should bear in mind that the limit of indemnity selected should not only be adequate for the damages which might be awarded by the court, but also the legal fees for the opposing council as well as the legal fees which would arise during the defence of such a case. In contrast to the potential financial impact a liability claim could have on a business, the insurance premiums payable for fairly high limits of indemnity are still very reasonable in the South African insurance market.”
He says that liability insurance provides increasing challenges for insurance companies as well.
“While it is fairly straightforward to assess a material damage claim (i.e. a motor loss, or fire damage to a building), the same is not true for liability claims, particularly those involving claims for bodily injury. In these instances there needs to be an assessment of future medical and hospital expenses, as well as loss of earnings and other general damages. In many instances the determination of negligence on the part of the business owner can also delay the proceedings and, if the case actually goes to court, many years might pass before the insurer actually has to pay the claim.”
