I was recently at a very well known Holiday Park in Scarborough and as always I drifted towards the Certificate of Insurance on the wall – £100m Public Liability insurance. Hmmm, that’s interesting I thought…
This may seem like a colossal limit of indemnity and a simple reflection of the buying habits of a huge corporate entity. In reality I suspect after a prudent analysis of the exposure, in particular the aggregation of people at any one time in any one location, it was a relatively simple decision to purchase such a limit after discussions with their Insurance Broker.
Of course, I recognise many of our existing and prospective clients do not require anywhere near this level of cover, however, in recent years I have seen limits of indemnity as low as £2m which in this day and age is simply too low. I would argue that as an absolute minimum every single purchaser of insurance should purchase a limit of £10m, as even in a sedentary environment (like an office) a ‘freak’ accident could render someone severely injured which is where the claimant and claimant solicitors costs sky rocket.
There is a lot to consider when undertaking a thorough insurance review however this subject, in my experience, is too often overlooked and should be towards the top of the agenda. In the current market conditions your insurance broker can often make the cost of increasing your limit on Public or Employers Liability cost neutral or certainly very inexpensive, in comparison to the total insurance costs.
You may think these ‘freak’ accidents will never happen to you. Sadly in recent years we have had to assist several clients where members of the public or employees have been rendered paraplegic or tetraplegic and the original potential quantum has been in excess of £20m. These were single members of the Public and/or Employees!
What happens if I have a £5m limit of indemnity and then have an injury claim for say £7.5m?
In a situation such as this, insurers generally have a provision in the contract of insurance which, in simple terms, states that they can hand over a sum equal to the limit of indemnity – in this case £5m – to the policyholder and leave the policyholder to continue to deal with the claim.
Why is this a problem?This is probably obvious, however, in simple terms the policyholder is then in a situation where they would have to appoint their own solicitor to act on their behalf. The insurance company’s nominated solicitor is unlikely to be able to continue to act due to conflict of interest.
Surely on going legal fees are covered somewhere?
Sadly not. Most insurance policies normally provide a limit of indemnity to be paid, with costs payable in addition. Once the insurers have handed over, in this case, the £5m, they are entitled by virtue of the contract of insurance, to limit their cost liability to the costs incurred up to that date. In this situation, the policyholder not only has to fund their own on going legal costs but also the costs of the claimant (if the claimant is successful).
What’s the worst case scenario if this situation arises?
Ideally the policyholder should appoint their own solicitor to work with the insurance company’s solicitors to attempt to negotiate a settlement. This may involve the policyholder making a payment over and above the limit of indemnity but it generally means that the insurers will be responsible for all of the claimant’s costs. It is a very complicated situation which can involve obtaining detailed reports on the financial means of the policyholder, particularly if there is a financial limit on what can be offered by way of settlement over and above the limit of indemnity. If the claim is very large and the financial means of the policyholder are insufficient to meet the loss then liquidation and even bankruptcy proceedings can follow. In the worst case scenario this could then lead to the loss of the family home.
In the grand scheme of things, the additional costs of a higher level of indemnity are very modest, so why take the risk?
Please speak to your account manager at ProAktive to discuss your existing limit of indemnity, even if your renewal isn’t due, and we can start negotiations now and provide you with an idea of the cost.