LIABILITY INSURANCE

For Beginners and

Enthusiasts.

Lesson 2

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LIABILITY INSURANCE

For
IIRM Students and
Learners

An Introduction.

by K Sankara Narayana
12.11.2024.

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 LIABILITY INSURANCE
Special Features of Liability Insurance :

1) In all Liability Insurance, Claims are paid to

Persons other than Insured, but on behalf of
the Insured. No Claim Payment to Insured
except Legal Expenses incurred.

2) Liability Insurance provides Indemnity to the

Insured for Potential Legal Liability arising
from Common Law and/or Statutory Laws.

3) Legal Costs of the Insured, incurred with

Written Consent of the insurer, are also
reimbursed under the Policy.
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 LIABILITY INSURANCE
Special Features of Liability
Insurance :

4) In Liability Insurance, Claims are

negotiated and settled with the
Consent of the Insurers, by the
insured who is required by Policy
Conditions, to co-operate with
Insurers in this respect.

5) In all Liability Insurance Policies,

there will be only ‘ Limit of Liability’
which will be Maximum Liability of 4
 LIABILITY INSURANCE
Special Features of Liability
Insurance :

“ Jurisdiction Clause ” is
Important in Liability Insurance
Products.

“Cause of action” may arise

anywhere in the World but Insurers
restrict their Liability to Courts
within Specific Jurisdictions.
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LIABILITY INSURANCE
Law of Torts and its Elements.

Common Law applied in India is based on

English Common Law which is body of
Law consisting of Past Legal decisions,
Customs, Usages and Conventions.

Public Liability Insurance is concerned

with Legal Liabilities of the Insured
arising mainly under Law of Torts which
forms part of the Common Law. What is
Tort ? Explain…..
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LIABILITY INSURANCE
Tort Definition.

Tort means a Civil Wrong arising out of a

Breach of some Duty which leads to a Civil
Cause of Action and for which Damages or
Compensation are recoverable.

The Law of Torts imposes a Duty on Each

Person to regulate his actions and behaviour
in such a manner so as not to cause injury to
other persons or damage to their ( Others’ )
property.

Eg. Libel, Slander or Assault.

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 LIABILITY INSURANCE
Tort -- Various Forms :

Libel : It is Publication, Writing or

broadcast of False statement in a
Permanent form designed to damage the
reputation of another persons.

Slander : It is also Communication of

false information similar to Libel but in a
Verbal form. ( Oral Words ).

Assault : It is unlawfully touching or

perpetuating Bodily Harm to a Person by 8
 LIABILITY INSURANCE
Tort Vs Crime.
A “ Tort ” is a Breach of Private Rights of
Individuals which affect only the Victims. Eg.
Assault, Defamation.

A “ Crime ” is a Breach of Public Rights

which affect the entire Society. Eg. Murder,
Rape or Burglary.

In Tort, action is brought by Victim who

is paid Compensation by the wrong-doer, as
determined by Civil Courts( Common Law).
Whereas in Crime, Prosecution is dealt by the
State and the wrong-doer is punished by Fine
and /or Imprisonment. IPC deals with Crimes. 9
LIABILITY INSURANCE
Tort Vs Breach of Contract.
A “ Contract ” is an Agreement
enforceable at law, based upon the Consent
of the Parties to it. Contract requires Privity
( connection or bond between Parties to a
particular transaction.) between the Parties,
whereas in Tort no such Privity is needed.

A “ Tort ” is a Duty that is broken,

imposed by the law and is applicable to all
members of the Society, whereas in Contract
this Duty arises out of Agreement between
Parties concerned and applies to definite
Persons.
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LIABILITY INSURANCE
Types of Torts.
Civil Liability can arise under
Law of Torts.
Statutes and
Law of Contracts.
Liability Insurance is concerned
with two Types of Torts.
Negligence and
Nuisance.

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LIABILITY INSURANCE
Negligence meaning .

“ Negligence ” is defined as breach of Duty Caused by

the Omission to do something which a reasonable man,
guided upon those considerations which ordinarily
regulate the Conduct of Human affairs, would do or
the doing of something which a Prudent and reasonable
man would not do.
In short “ Negligence ” means Absence of Care.

A Civil Action for Negligence can be taken, if

(A) Existence of duty of Care towards the Injured
Party,
(B)Breach of that Duty,
(C) Injury or Damage as a Consequence of that
Breach of Duty,
(D) Causal Connection between the Breach of Duty
and the Injury or Damage. ( Ingredients). 12
LIABILITY INSURANCE
Duty of Care :

In Donoghue Vs Stevenson (1932) case,

issues such as
When does the Duty of care arise and
To whom is the duty of care owed
were considered in this English Case.

The House of Lords decided that a General

Duty of care is owed by People not to injure
their Legal neighbours likely to be affected
by their acts or omissions. This is also
known as Lord Atkin’s ‘Neighbour Principle.
( Amplify Donoghue case facts
briefly.)
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 LIABILITY INSURANCE
Breach of Duty of Care :

Law Expects a Standard of Care.

It is based on a Reasonable man
behaviour. Action for Negligence can proceed
only if there is a Breach of that Duty of Care.
Standard of care is a Subjective issue and will
depend on the facts of the Particular case.
Courts always consider Precedents ( Past
Legal decisions).

The Degree of Care required from Owners

or Occupiers of Real Estate ( Land, Buildings
etc.) such as Trespassers, Licensee, Invitees,
Passer-by and Children.
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Injury or Damage :

Next requisite to civil action

against Negligence is that Victim shall
prove that he suffered Injury or
Damage as a Consequence of that
breach of Duty of Care.
Injury could be Death or Bodily
Injury and associated pain and
suffering, Economic losses such as Loss
of actual Earnings or Earning Capacity.
Damage could be Damage to
property also.
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LIABILITY INSURANCE
Causal connection between Breach and
Injury.
Injury or Damage should be a
Consequence of the negligence act. There
has to be Close Causal relationship between
the Duty Breach and the Injury or Damage.

Onus of Proof of Negligence:

Under Common Law, the Burden of
proving Negligence rests with the Victim.
Victim has to establish that Wrong-doer owed
him a Duty of care which was breached and
that was the Proximate Cause of the Injury or
Damage.
Res Ipsa Loquitur ( things speak for itself
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) is an exception.
LIABILITY INSURANCE
Employer’s Liability for Negligence of Employee :

Legal Doctrine “ Respondent Superior ” asserts

that An Employer is Liable for the Negligence of
his Employees. For this there shall be
Relationship of Master and Servant and the
Negligent act is committed in the Course of and
within the Scope of Employment.

This is based on the Principle that Employer is

financially Stronger than the Employee and is
better able to bear the Damages ( Monetary
Compensation).

The Employee is, of course, personally liable

for his own Negligence.
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LIABILITY INSURANCE
Principal’s Liability for Negligence of
Contractors.

A Principal or an Employer is not Liable for

the negligence of an Independent Contractor and
his Employees arising in connection with the
Performance of the Contract Works .
But Principal can not shift his duty of care to
Contractor which is attached to him as Principal,
as per Common Law.

Principal’s Liability for Contractor’s Negligence

may arise : (A) where Principal retains some
control over the Contractor or provides labour or
Machinery
(B) where Contractor’s Work involves Extra
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Hazardous acts etc.
LIABILITY INSURANCE
Principal’s Liability for Negligence of
Contractors
The Liability may be Joint or Several,
depending upon the circumstances. In practice,
the Principal provides, in the Contract, that he
should be indemnified by the Contractor, if the
Principal is held liable for Contractor’s
negligence.

Independent Contractor stands on a

different footing in law compared to a mere
Contractor ( Outsourced Works ).

Eg. Job Work done at Principal’s Work site

is different from Component Suppliers custom-
built based on Orders.. 19
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Nuisance :

“ Nuisance ” means acts or omissions

which unlawfully interfere with another
person’s use or Enjoyment of land or
some Right in connection with it.

Nuisance is of either Variety

Public Nuisance or
Private Nuisance .

Public Nuisance Causes any Common

Injury, Danger or annoyance to the Public
or People in general injuring their Use of
any Public Rights. 20
 LIABILITY INSURANCE
Nuisance :

Public Nuisance cannot be a Basis for Civil

Cause of action is dealt by the State a s a
Crime.

“ Private Nuisance ” arises out of the use of

one’s own Property in such a manner as to
cause Physical injury to the Property of
another or interfere with his Health or
Comfort.

Eg. Wrongful Escape of Smoke, Smell ,

Fumes, Gas, Noise etc.
Private Nuisance leads to a Civil action
for Damages, as it is an act affecting a
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Particular Individual.
 LIABILITY INSURANCE
Difference between Nuisance and
Negligence :

In Nuisance, the Duty of Care on the Wrong-doer

part is absolute and Liability arises if Damage is
Proved.

Nuisance related Damage may result in Pollution

Liabilities for Insurance.

In Negligence, Liability arises only if a person fails

to exercise that degree of care which was
demanded for a Particular situation.

Tort ( Negligence ) Cases will lead to Public Liability

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or Professional Indemnity insurance Claims.
LIABILITY INSURANCE

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