Has Insurers Missed the Liability Protection Opportunity?

A country can be poor if its population is not protected against unforeseen risks and losses, especially for the injuries and damage they or their property suffers, by the negligence of other parties. Seen in the opposite way, all organisations and citizens are at peril by a rising liability spectre. Liability exposures are multiplying by the day and they can include even liability to the environment (long-tail). Liability risk can not only be direct but also vicarious. The reach and diversity of liability risks are creeping up and every aspect of activity and occupation is facing the spectre. At the same time liability insurance is a win-win. It protects the insured and also third parties as it offers compensation for cases where liability is imposed. It is also something which can be negotiated and compromised for the benefit of the both the parties by a competent insurer and their legal team. This is a sure way to indemnify victims of any kind of third party losses if such insurance is made widely available. Hence IRDAI and the Government need to promote standard policies for public good and publicise widely, the good that liability insurance can be for citizens and the economy.

It is seen that till today, the country and its insurers have put their bet only on property and health insurance and totally ignored liability insurance. It is high time to appreciate the larger role that liability protection can play to help the society. Even an ordinary person can be saddled with liability including vicarious, and this is not being appreciated enough. In addition, there are everyday rising case of accidents and assaults that the public is being subject to, which a court of law can take up provided there is ambient environment for those in peril owing to liability are compensated. It is customary to read in the newspapers that when a wall collapses owing to heavy rain, the police are prompt to arrest the owner of wall, but there is nothing about the compensation, and the owner would not have been aware that he had a possible cover to protect against such a risk, at arm’s length.

Seeing the type of losses and injuries that the public is suffering; it is clear that liability insurance portfolio has huge growth potential in our economy. Enabling a vigorous liability environment will also increase the standards of safety across the economy by inducing more careful conduct by all, especially professionals and the managements of organisations. Failure to stay ahead of the rising exposures could lead to huge losses for corporates, professionals, MSMEs and even individuals. It is important for all insurers and intermediaries as also risk managers, legal experts, to understand the rising exposures of liability risks. This also involves understanding how to mitigate these risks etc. As stated in a sample literature in the US states that liability insurance is to be the first insurance: “General liability insurance is often the first policy that a small business buys. A general liability policy covers the cost of common third-party lawsuits, such as a customer who sues your business over a bodily injury or property damage. It also covers lawsuits related to advertising injuries, such as copyright infringement and defamation lawsuits.”

Liability issues creep up stealthily. Till it is claimed there may be no clue about the occurrence. At the same time, liability insurance is well known for the common-law rule referred to as the “known loss” doctrine, which provides that there is no coverage for a loss that has already occurred at the time the insured applied for the policy. It is not always clear what the “loss” is or what the insured “knew.” “The known loss doctrine seeks to prevent the concept of an insurable risk from becoming a mere fiction when the insured knows there is a substantial probability that it has suffered or will suffer a loss covered by the policy.” as stated in Stonehenge Engrg. v. Employers Ins. Wausau, 2000, 201 F.3d 296, United States Court of Appeals, Fourth Circuit. Similarly in the case Mid-America Sound Corp. v. Ind. State Fair Comm'n, 49 N.E.3d 545, 2016, The Supreme Court of Indiana stated: “the “known loss” doctrine in insurance law—which embodies the commonsense principle that a party cannot “insure” against a loss that has already happened, because there is no “risk” left to be allocated.” Further courts have recognized three commonly applied variations of the doctrine: “known loss,” “known risk,” and “loss in progress.” Just like health insurance, liability insurance insurance needs to be taken early and the retroactive clause in the policy can help to cover past unknown or unclaimed loss, if any.

Vicarious Liability can be pervasive in the context of economic activities. It is not generally understood by either individuals or organisations. In the case Viasystems (Tyneside) Ltd. v Thermal Transfer (Northern) Ltd & Ors [2005] EWCA Civ 1151, the England and Wales Court of Appeal stated: In “Atiyah Vicarious Liability in the Law of Torts (1967), in a chapter entitled "The Borrowed Servant", where it is suggested that it is strange that the courts have never countenanced what might be an obvious solution in some cases, namely holding both the general and the temporary employer vicariously liable for an employee's negligence. We considered that this interesting possibility should be examined in this appeal.” All these questions indicate that anyone can be held liable.

The overwhelming conclusion is that in India we are behind in the critical area of protecting our population against the spectre of widespread liability risks they can face and this is not helping the economy to rise to the levels it can. Insurers must step up to their developmental role in the area of liability insurance.