Liability Insurance Policy - Essay Example

Running Header: Liability insurance Your name: Course name: Professors’ name: Date Introduction The insurance policies are businesses are created around liabilities, a liability is considered a burden that one has to bear in the event of a loss. Liability insurance is a fundamental aspect in everyday business operations because of the numerous risks that people face in the course of work. Insurance companies take measures in order to insure individuals or companies in the event of a risk. The insurer pools risks and hence able to compensate an individual or a few individuals in the event of a risk that hinders or disables normal business operations of individual normal working due to injuries sustained. In some cases, the dependents of the insured gain when the insured dies prematurely, this insurance policy exists in order to protect such people from challenges that they face in the event of the demise of the insured. This discussion analyses liability insurance policy, it also covers the three main liability insurance types: Public liability, product liability and employer liability insurance. These three classes form the basis of evolution of different sub-classes of liability insurance. By considering each class, their relevance especially in business perspective will be highlighted. Liability insurance According to Owen (2005) this is one of the many insurance policies, liability insurance deals with the protection of a person or a business venture from adverse risks that may occur in a normal environment or in the course of work. Such liabilities are often legally binding and normally results from negligence, that potentially cause damages or injuries. What this insurance does is to cater for legal costs and legal payouts for which the insured person would be responsible if found legally liable. Liability insurance provides the duty to defend, the obligation to indemnify, and the responsibility to settle a reasonable claim. To defend means to tender the claim to the insurer who will in turn opt to declare judgment of no coverage, defend or refuse to do either based on the complaint tendered. To indemnify is to duly pay the sum to which the insured is actually liable. Settling reasonable claims is actually settling claim against the party insured (Cummins, 2002, p.34). There are types of liability insurance in many countries, the details may vary but in most cases, these liability insurance are compulsory in many countries. The aim of liability insurance is to protect those that may be at risk of damages or injuries as a result of negligence on the part of those responsible for ensuring the duty of care. The common classes of this mandatory policy covers professional services to the public such as doctors, manufacturers of products which may be potentially harmful such as food stuff, employers or contractors and vehicle drivers among others. The rationale for insurance laws is to secure this at risk as a result of deliberate activities that may cause damages or losses (Cummins, 2002, p.34). The Public policy thus requires such individuals to ensure that they insure individuals at risk in order for them to be duly compensated in the event of a risk. More so, there are a number of risks that people insure against and as a result, there is a range of liability policies which have increased in line with the increasing contingency fee which is normally offered by lawyers commonly known as litigation fee or class action basis. These policies fall into three main categories, namely: public liability, product liability and employer liability as identified below (Cummins, 2002, p.34). Public liability Public liability is part of the insurance liability; it is the law which mainly focuses on civil wrongs and remedies available for civil wrongs. Under the common law, public liability addresses the affected person which is usually as a result of the respondents, or the owner of the property’s negligence. The public liability is under the duty of care which demands that the owner of a property that people use must take all the necessary measures to ensure that its occupants are safe from harm. The duty of care is however not limited to the owners of the premises alone, the invitees should also take necessary precautions to ensure their own safety and the safety of the people within the premises. In the event that there is an accident due to the design or flaws in the occupant’s premises, then the owner will be liable for the torts committed as a result of these avoidable failures. It is imperative to note that even a trespasser owes duty of care, this is mainly common especially when small children are involved. Statute liability is one of the most common areas in insurance, as an example, workers’ compensation as well as motor vehicle third party liability. It is therefore necessary for property owners such as managers and hotel owners to fully comprehend lease agreement, tenancy and other contracts relating to independent contractors who perform maintenance and cleaning services. Notably, the major issue on the contractual liability from an insurance perspective us the head lease and management agreement (Baker & Griffith, 2010). This mandates the manager or the lessee to maintain, replace, and repair any property damaged until the time that the lease agreement expires. Notably, contractual agreements often require indemnity to the property owner against liabilities that he or she faced with respect to damages or injuries that may arise as a result of the occupation, use or management of the property in that case. It is therefore the responsibility of the parties involved in the agreement to ensure that the contractual agreement is not onerous and that every party comprehends their role with respect to the utilization of the property in question. In most cases, the owners of such properties insure them with relevant insurance bodies in order to mitigate unforeseen responsibilities on their side. Public liability varies from sate and different countries have their own way of implementing this law (Cummins, 2002, p.34). Product liability This liability insurance is not relevant in some countries, however legislations like UK Consumer Protection Act 1987 demands that manufacturers and suppliers of goods burden some form of liability insurance as a part of combined liability policy (Stapleton, 2004, p.3). This liability covers a number of manufacturing fields such as agriculture equipments and products, chemicals and pesticides, tobacco, asbestos, recreational equipments, pharmaceuticals, and medical devices. In the U.S. the most common claims of product liability include breach of warranty, strict liability, negligence as well as consumer protection claims. It is worthwhile to note that liability insurance varies from state to state (Owen, 2005). In order to successfully issue a clam in product liability it is mandatory to satisfy the basic elements of the claim such as manufacturer’s flaw, design flaw and failure to issue warning on a product. Manufacturing flaws are that that occur in the process of product manufacturing, they usually involve poor-quality materials or generally poor work done by the worker. Design defects are those that affect the overall design of a product. These defects are normally potentially dangerous and could cause damages or injuries. In order to claim design defect, one must demonstrate that the product fails to satisfy customer expectations and expected ordinary working condition (Owen, 2005). On the other hand, failure to warn on defects arise when the product has risk which are non-obvious, this is normally evident in electronics such as microwave and refrigerators that can potentially cause injuries. Failure to provide such warning can lead to the manufacturer being sued and liable for the damages that result from the product. Employer Insurance There are a number of policies which have been developed in order to cover employees in their course of work. The employer is responsible for ensuring that its employees are well covered and they can be compensated in the event of a loss. According to Oliphant & Wagner (2012, p.124) in spite of the contract between the employer and the employee, liability for industrial injuries is normally a case of tort law. As such, the burden of proof rests on the injured party. In this case, the Employer’s liability can be explained as in a special category in tort law in the sense that the employer has a duty of care towards the employee which he does not have towards a third party. As a result, employer’s liability towards an employee is normally described as stricter than ordinary tort law liability. This is because the basic duty of an employer is to ensure that the necessary equipments and appliances at workplace are functioning properly and are in an organized manner. The employer can thus be held liable either on the basis of his own actions or omissions or on the basis of omissions and acts that are actually committed by its employees. This form of liability based on acts or omissions is fault-based liability (Oliphant & Wagner, 2012, p.124). In the U.S. insurers are restricted from imposing conditions within their policies that will impose unreasonable conditions to a liability or demand that the insured take reasonable preventive measures to comply with the regulations. In countries where insurance is not mandated, developing businesses are often driven to bankruptcy when they face a risk that potentially damages its business operations and are not covered by insurance. In Britain, employer’s liability insurance is compulsory; this is limited when the employee owns the company. In the U.S. workers compensation insurance is mandatory unless the employer can demonstrate without any reasonable doubt the capacity to self-insure by showing enabling financial capacity as well as effective risk mitigation plans. In this case, such employer is required to carry excess insurance for cases where the losses are of high magnitude to the employer liability (Oliphant & Wagner, 2012, p.124). As evident from the above figure, there are three main classes of liabilities, product, public and employer. All these liabilities address different risks experienced at different levels in the working environment (Owen, 2005). The purpose of these insurance liabilities is to protect individuals and parties form injuries or damages as a result of negligence or omissions from their custodians. Insurance liabilities play an imperative role in the business environment because it enables small businesses to continue with their operations even after a disaster. Conclusion As discussed in this analysis, liability insurance is a dealing which aims at protecting a person(s) or a business from risk that may occur in the course of normal activity or business operation. The main aim of insurance is to compensate individuals or business from unforeseen risk that may occur in their daily or business environment. Liability insurance varies from country to country but in most cases the three classes of liability insurance, public, product and employer are compulsory. Public insurance normally deals with awarding remedies for civil wrongs committed as a result of negligent acts or omissions. The public liability demands a duty of care to whoever owns a property where people must use. A property is not limited to an immovable asset but also mobile asset such as a motor vehicle. Secondly, product liability aims at protecting consumers of products from manufacturers by placing some form of burden on the manufacturer on the risks posed by their products to the end consumer. The third form of liability is the employer liability; in this case, the employer is not only under the duty to ensure safe working environment but also equipments in good working condition. The employer is mandated the responsibility of insuring its employees against risks that they face in the course of their normal work. As noted, the rationale for different classes of insurance is to address the risks that individuals, parties and businesses face in their normal environment. Through insurance, business sustainability especially small businesses are enhanced and increase protection is ensured in workplaces. References Baker, T & Griffith, S.J. (2010). Ensuring Corporate Misconduct: How Liability Insurance Undermines Shareholder Litigation. New York, NY: University of Chicago Press. Cummins, J.D.(2002). Deregulating Property-liability Insurance: Restoring Competition and Increasing Market Efficiency. New York, NY: Brookings Institution Press. Pp. 23-34. Oliphant, K & Wagner, G .(2012). Employers' Liability and Workers' Compensation. New Jersey, NJ: Walter de Gruyter. Pp. 123-127. Owen, D. (2005). Products liability law. New Jersey, NJ: Thomson/West. Stapleton, J.(2004). Product Liability. Cambridge: Cambridge University Press. P.3-7. Read More