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Liability Insurance with

Policy Wordings


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Printed in India


iii

Liability Insurance with

Policy Wordings

By

Sudhir Kumar Jain

Sanjay Gupta

EDUCREATION PUBLISHING (Since 2011)

www.educreation.in


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About The Author

Sudhir Kumar Jain, M.Com, CMA, SAS (Commercial), AIII,

Broker Examination is a well reputed professional of 37 years of

rich experience in varied fields of Finance, Accounts, Costing,

Insurance, Taxation, Teaching, Software development etc. He is a

visiting faculty to various Universities of the country. Additionally

his contribution in the arena of educating a large number of

Officers aspirants from Insurance PSUs taking promotional

examinations since 2007 is well acknowledged. A number of

books authored by him on the subjects of insurance and design-

insurance course „Diploma in Insurance‟ for National Institute of

Open Schooling are widely acceptable by the professionals as

reference material. He has also co-authored a number of books on

the subjects like Fire, Engineering and Marine Insurance.

Currently he is a Director with “Embee Insurance Brokers Ltd”

Chandigarh.

Sanjay Gupta, AMIE (Electronics and Communication Engg.), M

Tech Biomedical Engg.( IIT Delhi) is regarded as one of the

leading Insurance Surveyor and Loss Assessor having wide

experience of 26 years. He was employed as a Project In-Charge

with USFDA after accomplishing his M Tech from IIT Delhi. As a

R&D Engineer with a core team of M/s Elscent Inc, Israel for three

years his immense contribution was to design first of Spiral CT

Scanner in the world. In 1996, he left lucrative international career

to start and practice as Insurance Surveyor and Loss Assessor, and

currently, he is widely acknowledged for his in-depth knowledge

of entire spectrum subjects related to Insurance, in the country. He

has also co-authored a number of books on the subjects of Fire,

Engineering and Marine Insurance.


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Dedicated

To Parents


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Acknowledgement To

My Friend

Gopal Vaidyanathan

For

Editing this book


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Content List

S.no. Particulars Page

1 Introduction 1

2 Important Terminologies of Liability Insurance 12

3 Types of Liability Insurance available in India 17

4 Third Party Liability Insurance under MV Act

1988

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5 Public Liability Act 1991 26

6 Employees Compensation Insurance Policy 43

7 Clinical Trial Insurance Policy 56

8 Director‟s & Officers Insurance Policy 80

9 Public Liability (Industrial Risk) Insurance 134

10 Public Liability (Non Industrial Risk) Insurance 160

11 Product Liability Insurance 178

12 Kidnapping, Hijacking & Extortion Insurance

Policy

203

13 Carrier Legal Liability 226

14 Product Contamination Insurance Policy 240

15 Cyber Security Insurance Policy 266

16 Professional Indemnity Insurance 306

17 Error & Omission Insurance Policy (IT Industry) 330

18 Commercial General Liability Insurance 359


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Liability Insurance With Policy Wordings

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Introduction ______________________________________________________

1.0 Background

Man has always strived for security and his life has always been a

struggle for more and more security for himself, for his family, for

his city and for his country.

Man by nature is an insecure animal, the very fact that he may

die anytime, that his life may be cut short by any number of events

and the fact that unlike other animals, he is blessed with a brain,

which can appreciate this uncertainty makes a man insecure and

therefore his need for security arises.

In the pre-historic stage man grew his finger nails to protect

himself and the Stone Age saw man using the sharp edged stones

for his defence and gradually more sophisticated weapons were

developed by him. To protect himself from the vagaries of nature

he needed shelter, at first he lived atop trees, then found shelter in

caves and gradually started building his own shelters. As mans

needs grew so did his belongings and he had to devise methods to

safeguard not only his life but also his belongings (property). Thus

mans search for security and his desire to protect himself and his

property against losses has been a long and unending search and

the search still continues.

Now, a Man has become a social animal therefore “Man owes

many moral duties to his fellow man, such as feed to hungry man,

cloth to naked, care for the sick, shelter the homeless, protect the

defenceless, assist the weak and enlighten the ignorant.” These are

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Sudhir Kumar Jain, Sanjay Gupta

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moral duties but not binding by any law. In addition to it, any

person is not supposed to act to harm his fellow man or he should

not also be careless or negligent. The term “Negligence‟ have

become very important in our society especially in the developed

countries. Therefore we will be discussing the meaning of

negligence in detail as under:

1.1 Meaning of Negligence

In general the negligence means carelessness. But various

definitions are given as follows:

Definitions of negligence: failure to act with the prudence that

a reasonable person would exercise under the same

circumstances the trait of neglecting responsibilities and

lacking concern.

Negligence (Lat. negligentia, from negligere, to neglect,

literally "not to pick up") is a legal concept in the common law

legal systems usually ...

In the criminal law, criminal negligence is one of the three

general classes of mens rea (Latin for "guilty mind") element

required to constitute a conventional as opposed to strict liability

offense.

The state of being negligent; (singulare tantum) The tort

whereby a duty of reasonable care was breached, causing damage:

any conduct short of ... negligent - characterized by neglect and

undue lack of concern; "negligent parents"; "negligent of detail";

"negligent in his correspondence"

Negligent-Careless, without appropriate or sufficient attention;

Culpable due to negligence. The failure to use the degree of care

that is required by law to protect others from harm. In its broadest

sense, carelessness. More precisely, conduct which falls below the

standard of care established by law for the protection of others

against unreasonable risks of harm.... “Failure to exercise care,

resulting in injury to others or damage to property”. Failure to use

reasonable due care to avoid a foreseeable harm to a person, place,

or thing. A failure to conform your conduct in a situation to the

level of care expected of the hypothetical reasonable person, where

that failure is the proximate cause of injury to another. Imprudent



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action or omission which may cause injury, damage or loss. A civil

wrong that arises from (1) a duty to take reasonable care (2) a

breach of that duty to take care and (3) damage suffered by an

individual as a result of the breach of the duty to take care.

Negligence gives rise to a liability in tort. Failure to exercise

ordinary care or caution.

A highly authoritative widely-accepted definition is found in

Black‟s Law Dictionary (5th Edition) which states, in part:

"Negligence is the failure to use such care as a reasonably

prudent and careful person would use under similar circumstances;

it is the doing of some act which a person of ordinary prudence

would not have done under the circumstances or failure to do what

a person of ordinary prudence would have done under similar

circumstances. Conduct which falls below the standard established

by law for the protection of others is unreasonable risk of harm; it

is a departure from the conduct expectable of a reasonably prudent

person under like circumstances."

Negligence is the failure to exercise the required amount of

care to prevent injury to others. For example, if you cause an

accident that injures someone or damages their vehicle because

you were driving at an unsafe speed, then you could be sued for

negligence.

Negligence is the breach of a duty caused by omission to do

something which a reasonable man guided by those considerations

which ordinarily regulate the conduct of human affairs would do,

or doing something which a prudent and reasonable man would not

do.

Negligence becomes actionable on account of injury resulting

from the act or omission amounting to negligence attributable to

the person sued. The essential components of negligence are three:

“duty”, “breach” and “resulting damage”.

Any negligence by a person (wrong doer) as a result of which

other person gets bodily injury or death or property damage or

create nuisense, may be liable to pay compensation to the

aggrieved person. In other words an act which is wrong being a

violation of a person's rights or the failure to perform a legal duty

is a negligence. The amount of compensation is payble as imposed



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by the courts. This amount of compensation is known as legal

libilty.

1.2 Legal liability

It arises from three general classes of legal wrongs:

1.2.1 Crime: It is a wrong in which a person intentionally inflicts

injury, or takes something from another, such as murder, robbery,

rape, theft, and so on.

1.2.2 Tort: It is a legal or civil wrongs committed against people

or organizations, causing them a loss. Intentional torts are willful

acts or the willful failure to act when required to do so that causes

injury to someone else. Crime is a specific type of intentional tort

that causes physical harm or loss, such as murder, rape, or theft.

Other types of intentional torts include slander and libel, patent

infringement, and false imprisonment. Torts result either because

the tortfeasor, who is the one who commits the tort, is either

negligent in his duties which arises out of law and not contract,

causing someone else a loss, or causes a loss through his actions.

For example, causing an auto accident, or failure to make a safe

product are torts

1.2.3 Breach of contract: It is the lack of performance by a party

to another to satisfy a contract that the parties agreed to.

In some cases, the law imposes absolute liability (or strict

liability) on specific parties without regard to fault, and, therefore,

obviates the need to prove fault in court. For instance,

manufacturers are held strictly liable for defective products that

they manufacture.

Sometimes, the law designates other parties as being

responsible, whether they are or not. Imputed negligence results

in vicarious liability, where the principal is responsible for the

acts of his agents.

For example, employers have vicarious liability for the actions

of their employees. If an employee injures someone in the course

of employment, then it doesn't matter whether the employer could



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have done anything to prevent it—the employer will be held liable

regardless.

Sometimes, the act itself determines negligence. Under the

doctrine of res ipsa loquitur, (Latin term for "the thing speaks for

itself"), there are some actions so obviously negligent that the law

presumes negligence, such as when a surgeon operates on the

wrong side of the body, and the defendant, in such cases, must

prove that he wasn't negligent.

1.3 Requirements for Negligence

Most cases of negligence cannot be determined absolutely, for it

depends on many factors. The main measure used to determine

whether an act was negligent is to consider what a reasonably

prudent person would do, given the age and knowledge of the

tortfeasor, and other relevant factors.

Before a court will award damages, the presumed negligence

must satisfy the following three requirements:

1.3.1 There must be a legal duty to perform or to use

reasonable care: It means a legal duty rather than a mere moral ,

religious or social duty. The complainant has to establish that he

opposite party owed him a specific legal duty to take care of which

he has made a breach. There is no general rule of law defining such

duty.

It is well established in a judgment of DONOGHUE Vs

STEVENSON where the ginger beer bottle was purchased but

found snail floated out in the ginger beer. After consuming the beer

she suffered seriously after drinking part of contaminated contents.

The contents could not be ascertained because the bottle was dark

opaque glass. It was pleaded that he did not owe the duty towards

her. But the House of Lords held that the manufacture owed her a

duty to take care the bottle did not contain any noxious matter and

he would be liable on the breach of the duty.

Other examples:

A) If a person falls in the open pit and dies, it means the municipal

corporation has breach the duty and liable for the compensation. In

one of the judgments S. Dhanaveni Vs State of Tamil Naidu, the



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deceased slipped into a pit filled with rain water in the night. He

caught hold of a nearby electric pole to avert a fall. Due to leakage

of electricity in the pole was considered negligent and was held

liable for the death of the deceased.

B) An overhead electric were running across a road snapped and

fell on a cyclist going on the road who died due to electrocution. It

was negligence of the electricity board and board is liable to pay

the compensation.

It is also said that the person cannot be held liable if injury is

not foreseeable like a person while driving a vehicle and got

cardiac arrest and dies as a result there is an accident and injures

pedestrians. The car owner will not be liable as the death is act of

God not because of breach of duty.

If a person jumps off from the running bus and he meets with

an accident and dies. In this case the bus driver will not held liable

as he did anticipate that the passenger will jump off from the

running bus.

1.3.2 There must have been a failure to perform that duty:

Failure to perform duty means non-observance of due care which

is required in a particular situation. Whether there is failure to

perform that duty can be adjudged by considering the following

points;

i) The importance of the object to be attained: In fact every

person should take greatest possible care which every person will

take under certain circumstances. The law permits taking chance of

some measure risks so that public interest various kinds of

activities should go on. In one of the Judgments it is clarified: Due

to heavy rainstorm the factory was flooded with water. Some oily

substances got mix up with water. The water drain away but some

oily substance remained on the floor. To avoid any accident the

owner of the factory spread the saw dust on the oily surface but

due to non availability of the saw dust it cannot put on the whole

floor. One of the employees fell on the floor who filed as suit as

failure to perform the duty. But House of Lords observed that there

is no breach of duty as the owner of the factory has taken all

precautions to avoid any casualty in the factory. No compensation

to the employee.



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ii) The magnitude of risk: The degree of care required varies

according to each situation. The degree of care depends upon the

magnitude of risk which could have been foreseen by a reasonable

and prudent man.

For example: The driver of vehicle should take care while

driving the vehicle especially in fog or drizzling.

A person Carrying loaded gun has to be more careful than a

person carrying bricks or sand.

iii) The amount of consideration for which services are offered: The degree of care depends upon the kind service offered by the

person and the consideration charged there from the customer.

A patient who is admitted to the hospital where room charges is Rs

5000/- per day can expect better care as compared to Govt hospital.

The customer will expects hygienic food in five star hotel as

compared to the road side dhaba.

1.3.3 The plaintiff must have suffered an injury or a loss; The

person should have suffered some loss or injury and he cannot

claim compensation (damages) simply the service level is low.

While claiming the damages it is the duty of the aggrieved party

that it is negligence of the opposite party. It is known as maxim

“Res Ipsa Loquitur” which means the aggrieved party will prove

that the defendant is negligent. Sometimes the aggrieved party

need to prove the negligence as the circumstances will speak itself

that the opposite party is negligent.

For example; If there is cloak tower which is 80 years old and

40 persons died under the wall. There is no need to prove

negligence on the part of the Municipal Corporation as it is evident

that 80 years old cloak tower can not sustain for longer period

unless & until it is properly maintained. It is clear that there is

negligent on the part of the MC.

It does not mean that no defense is available to the defendants.

There are various factors that can either prevent a plaintiff from

collecting damages or that will reduce the amount awarded.

Contributory negligence is negligence that is caused by both

plaintiff and defendant. If the plaintiff contributed to his injury,

then, in some states, the plaintiff will be prevented from

collecting any damages.



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Comparative negligence allows the plaintiff to collect some

damages, but it will be reduced by the amount by which the

plaintiff contributed to his own injury. There are 3 major rules,

which differ according to state law and according to the

amount of contributory negligence, that determine the amount

that the plaintiff can collect.

The pure rule reduces the plaintiff's damages by the amount

that he contributed to his injury. Thus, if a plaintiff has been

judged to be 30% at fault, then his reward will be reduced by

30%.

The 49 percent rule requires that the defendant be less than

50% responsible in order to collect any damages, and any

damages awarded will be reduced by the plaintiff's

contribution. Under this rule, only 1 party can collect where

both parties are suing each other.

The 50 percent rule permits the plaintiff to collect damages

only if his share of the negligence is not greater than 50%. In

contrast to the 49 percent rule, both parties can collect 50% of

their damages from each other if both are judged to be 50% at

fault. However, if the degree of fault is anything but 50%, then

only 1 party will be able to collect damages, just as under the

49 percent rule.

The last clear chance rule modifies comparative negligence

by allowing the plaintiff to collect damages from the defendant,

even if the plaintiff contributed to his injury, if the defendant

had a last clear chance to prevent the injury. In other words,

could the defendant have prevented the injury regardless of the

plaintiff's negligence? If the answer is yes, then the plaintiff

will still be able to collect regardless of comparative

negligence.

Finally, there is the assumption of risk - one assumes risk by

engaging in an activity that is inherently risky, and, therefore,

should not be allowed to collect damages if an injury results by

engaging in the activity. Thus, if one plays racquetball without

wearing goggles, and her opponent hits the ball and injures her

eye, she will be prevented from collecting damages from her

opponent, because by playing racquetball without wearing



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goggles, she assumed the risk that she will suffer an eye injury

or even lose an eye while playing.

1.4 Damages

There are three general types of damages awarded for negligence.

1.4.1 Special damages are awarded for losses where the financial

impact is quantifiable and can be itemized, such as medical

expenses or loss of income or funeral expenses.

1.4.2 General damages are losses that cannot be known with

certainty or cannot really be compensated with money, such as loss

of consortium or pain and suffering or loss of recreation ability or

loss of reduced expectation of life.

1.4.3 Punitive damages are assessed to deter the tort teaser from

committing the act again, which only makes sense for intentional

torts. It is just to punish the wrong doer.

1.5 Special features of the Liability insurance

The liability insurance is different from the property insurance

as under:

The claims are paid to persons other than the insured i.e

member of the public or the insured’s employees as the case

may be but on behalf of the insured.

The insurance provides indemnity to the insured in respect of

his potential legal liability i.e liability arising under Common law

or statutory law.

Claims are negotiated and settled by insurers but on behalf of

the insured who is required, by policy conditions to co-operate

with the insurers in this respect

Legal cost of the insured incurred with the written consent of

the insurers are reimbursed under the policy

Instead of “sum insured” a limit of indemnity is stated in

public liability policies. In employers liability policies no limit of

indemnity but also to other factors such as turnover, seating

capacity number of students etc



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1.6 Defenses

An allegation of negligence may be resisted by raising certain

defenses. The common defenses are:

1.6.1 Volenti Non fit Injuria (To him who is willing there can be

no injury). If a person voluntarily consents to run a risk, he has no

right of action against anyone for injuries suffered as result of his

actions. For example, spectator at a motor race, football match or

similar sporting events cannot complain of any injuries out of

accidents which may be reasonably expected to occur at such

events. According to law, their presence at such events is an

implied consent to accept the risks involved.

1.6.2 Inevitable Accident: An inevitable accident is an accident

which occurs in-spite of the exercise of ordinary care, caution and

skill. The defendant has to prove that the accident could not have

been avoided. For example, the accident may have been caused by

a hidden defect in machinery which could not have been

discovered on a reasonable inspection.

1.6.3 Act of God or Vis Major: This has been defined as an event

due to‟ natural causes directly and exclusively without out human

intervention‟. Examples of acts of God are storms, earthquake,

lightning etc.

1.6.4 Emergency: if a person in a moment of imminent danger,

acts in a way which causes injury to another, he will not be held

liable in negligence if his act was not unreasonable in the difficult

situation in which he was placed.

1.6.5 Contributory Negligence: If the plaintiff suffers injury or

damages partly due to his own fault and partly due to the fault of

the defendant, the damages, are reduced according to the blame

attachment to the plaintiff.

1.6.6 Contracting out: Persons may relieve themselves of or

restrict their liability by incorporating conditions in the agreements

entered into with other parties. So long as these condition are not



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