Workers’ Compensation Insurance
Employers are responsible for the health and safety of their employees while they are at work. Injury at work or illness owing to nature of work (while being employed) contributes to the employer’s liability. An employer is liable under the law towards the employees to pay compensation on occurrence of an injury or disease during the course of employment. Workers’ compensation insurance is also known as employer’s liability insurance. It obligates the insurer to pay benefits for which the insured is liable under the workers’ compensation law of the state or states listed in the declarations.
Workers’ compensation insurance provides cover for the cost of compensation for employees’ injuries or illness (caused onsite or offsite). Since workers’ compensation forms a part of statutory liability, it becomes a legal obligation for an employer to provide the necessary coverage to its employees to comply with laws.
Table of Content
The employer’s legal liability may occur due to:
- Personal negligence of the employer
- The employer’s negligence/failure to use reasonable care and skill in provision and maintenance of suitable and safe work environment and safety measures
- Breach of statutory regulations with regards to the safety of employees (for example, Factories Act, 1948; Workmen’s Compensation Act, 1923; etc.)
- Personal negligence of fellow employees
Workmen’s Compensation Act, 1923
The workmen’s compensation insurance business in India is controlled by the Workmen’s Compensation Insurance Act, 1923. This is one of the key social security legislations. It requires employers to offer financial protection to workmen and their dependants on occurrence of accidental injuries by paying compensation.
Some important provisions of the Act are as follows:
- According to Section 3 of the Act, the employer is liable to pay compensation if personal injury is caused to the workmen by accident during the course of employment.
- If workmen contract any disease, specified in the Act as an occupational disease, the illness is deemed to be injury by accident during the employment tenure.
- However, the employer will not be liable if the injury occurs as a result of:
- Employees being under the influence of alcohol or drugs
- Disobedience or negligence towards safety rules and regulations
- Non-compliance towards safety devices installed for workforce safety
- A workman dying a natural death while on duty; no liability is attached to the employer unless it is proved that the death was caused by strain and stress applicable to the particular employment.
There are two types of coverage provided under the policy:
- Coverage A: This indemnifies the insured/employer if any employee (in service and directly employed) sustains bodily injury or meets with an accident or contracts occupational disease(s) during the course of employment, which leads to legal liability of the insured/employer.
- Coverage B: This provides indemnity to the insured against their legal liability under the Fatal Accidents Act, 1855, and at Common Law. (This policy may not be issued to cover employees who fall within the definition of “workmen” under the Workmen’s Compensation Act, 1923, as amended.)
Sum Insured
The sum insured is calculated on the basis of:
- Earnings of the eligible workmen, which includes wages, salaries, overtime, board/lodging and other perquisites
- No deductions for PF/pension to be accounted
- TA/travelling concessions not to be accounted
- No deductions for income tax deducted at source
Amount of Compensation
Under the Workmen’s Compensation Act, 1923, the amount of compensation depends on the nature of injury, that is, permanent total disablement, permanent partial disablement, temporary total or partial disablement, or death. The amount of compensation is also dependent on the average monthly wages and the age of the workmen.
Exclusions
According to the Insurance Regulatory and Development Authority (IRDA), the employer/insured is not liable under this policy in respect of:
- any injury by accident or disease directly attributable to war, invasion, act of foreign enemy, hostilities (whether war be declared or not), civil war, mutiny, insurrection, rebellion, revolution, military or usurped power
- the insured’s liability to employees of contractors to the insured
- any liability of the insured, which attaches by virtue of an agreement but which would not have attached in the absence of such agreement
- any sum which the insured would have been entitled to recover from any party but for an agreement between the insured and such party.
General Liability Insurance
General liability insurance is the insurance policy that covers claims occurring from an insured’s liability due to damage or injury (caused by negligence or acts of omission) during performance of his/her duties or business. This policy for organisations is provided under the Commercial General Liability Policy (CGL). It was introduced by the Insurance Services Office (ISO), in January 1986, as part of the commercial lines simplification programme, also known as ‘the portfolio programme’. The CGL policy is mainly sold to customers having foreign collaborations or business entities in foreign countries. It covers a wide range of liability loss exposures of commercial organisations.
The loss exposures can be segregated under the following categories:
- Premises and operation liability risks
- Products and completed operations liability risks
- Limited contractual liability
- Personal and advertising injury liability
- Medical payments
- Supplementary payments
Liability arising under the CGL policy can be categorised as—i) com- mon law, ii) contract and iii) statute. The various forms of torts that are covered under this policy are negligence, trespass, liability for occupier’s premises, etc.
Policy Coverage
CGL policy was first introduced in the US in 1941, and since then, it has become the most trusted liability policy around the world. The policy was introduced by ‘casualty insurers’, and since it was comprehensive in its coverage and definitions, it was termed as ‘Comprehensive General Liability’.
In 1996, the American Association of Insurance launched two distinct versions of the CGL policy: “occurrence version” and “claim-made version”. The two versions differ from each other with respect to the coverage of claim. The occurrence version provides cover for all bodily injuries or property damages that occur during the policy period.
On the other hand, the claim-made version provides cover for all bodily injuries or property damages that occur during the policy period, provided claims are made against the insured during the policy period.
Commercial Automobile Insurance
Commercial automobile insurance provides insurance cover for vehi- cles used by business organisations. It could be vehicles used by the insured or given for use by the insured. Further, the cover is available for a single as well as a fleet of vehicles. In India, vehicle insurance comes under the Motor Vehicles Act, 1988.
The two main sections of the commercial automobile insurance policy are:
- Section I: Loss of or damage to the vehicle insured
- Section II: Liability to third parties
Section I: Loss of or Damage to the Vehicle Insured
The insurer shall indemnify the insured against the loss of or damage to the vehicle insured under the policy by:
- Fire explosion, self-ignition or lightning
- Burglary, housebreaking or theft
- Riot or strike
- Earthquake
- Malicious act
- Whilst in transit by road, rail, inland waterway, lift, elevator or air
Payment under the policy shall be subject to the rate of depreciation as applicable (given by the insured).
Exclusions
Some of the exclusions are as follows:
- Consequential loss
- Depreciation; wear and tear; mechanical, electrical or electronic breakdown; failures or breakages
- Damage to tyres unless damage is caused to other parts of the vehicle at the same time
- Loss of or damage to the contents being carried in or on the vehicle
- Damage caused by overloading or strain
Section Ii: Liability to Third Parties
Liability to third parties occurs in the following conditions:
- Insurer shall indemnify the insured or his/her authorised driver of the vehicle against legal liability for damages (including the related costs and expenses) for:
- Death of or bodily injury to any person caused by or occurring due to the usage (including the loading and/or unloading) of the vehicle
- Damage to property caused by the usage (including the loading and/or unloading) of the vehicle
- Death of or bodily injury to any person caused by or occurring due to the usage (including the loading and/or unloading) of the vehicle
Following the death of any person covered under this policy, the legal representatives of that person will be indemnified for liability covered under this section, provided the legal representatives comply with all the terms and conditions of the policy.
Exclusions
This policy will not cover:
- Death of or bodily injury to any person in employment
- Death of or bodily injury to any person (other than a passenger carried by reason of or in pursuance of a contract of employment) being carried in or upon entering or getting onto or alighting from the vehicle at the time of the occurrence of the event out of which any claim arises
- Damage to property held in custody, control or belonging to any member of a household
- Damage to any bridge, weighbridge or viaduct, or to any road caused by vibration or by the weight of the vehicle or of the load carried by the vehicle
- Damage to property caused by the explosion of a boiler forming part of or attached to or on the vehicle.
Aviation Insurance
The aviation insurance sector has always varied from other insurance sectors. This variation has been in terms of the fact that both the premium base and the customer base are very narrow, with just a minimum number of insured.
As the potential exposure of each airline is huge, it is almost unknown for a single insurer to underwrite the total amount of an airline’s overall risk. Generally, a number of insurers will each underwrite a small percentage of that exposure; thus, keeping the exposure for any one insurer within acceptable limits.
Aviation insurers provide insurance cover for insured (airlines; manufacturers; airports; service providers, such as refuellers, caterers, security screeners; etc.) against loss, damage and liability, in return for premiums. Insurers in turn pay premiums to reinsurers to offset part of the risk. The risk that an insurer can prudently cover is estimated by the sum of funds from his/her capital providers, retained profits and any reinsurance he/she has purchased.
Some of the aviation insurance covers are given as follows:
- Aircraft (flight and ground risks) policy: The coverage provided by the policy includes the replacement of damaged aircraft parts ‘on the ground’ or any issue while ‘in-flight’. The policy also covers legal liability to both passengers and any third party.
- Aircraft hull policy comprehensive: The policy covers loss of or damage to the aircraft while it is in flight, taxying, on the ground or moored; liability towards third parties; and passenger’s liability.
- Aircraft hull war risks policy: The cover provides indemnity for loss of or damage to aircraft caused by:
- War, invasion, hostilities, civil war, rebellion, insurrection, martial law, military or usurped power, or attempts at usurpation of power
- Strikes, riots, civil commotions or labour disturbances
- Political, criminal or terrorist acts resulting in loss of life
- Any malicious act or act of sabotage
- Aviation personal accident policy (crew): This is a group personal accident insurance granted to the airline operators providing for specified benefits payable in the event of accidental bodily injury to members of the crew.
The airline operator is the insured entity under the policy and the members of the crew are designated as insured people. The insured, that is, the airline operator, has the sole and exclusive rights of receiving any payment or of enforcing any claim under the policy. The capital sums insured differ according to the status of the insured personnel. - Hijacking endorsement: This insurance covers loss of or damage to the aircraft, caused by hijacking or any illegal way of taking control of the aircraft or crew in flight by any person(s) on board the aircraft.
- Loss of licence insurance: The operating crew of the aircraft are required by law to have valid professional license from the government to work in their occupation. This license is granted after satisfactory medical examination. Renewal of the license is also subject to similar requirements. This license can be temporarily or permanently suspended on medical grounds. The resultant financial loss is covered by the loss of license policy.
- Loss of use insurance policy: This cover is triggered by air operators to protect them against the loss of revenue caused by aircrafts being grounded for repairs for a long time. However, this policy indemnifies the insured for only partial loss of revenue.
- Product legal liability insurance policy: This insurance is triggered by aircraft manufacturers or repairers to protect them from risks that are caused by faulty design of the aircraft or those due to defective repair work. The policy indemnifies the manufacturer or repairer all sums that they may be liable to pay as a consequence of defective workmanship or manufacture.
Exclusions under aviation clause include:
- Invasion and acts of foreign enemies; eg., terrorism
- Excluding any hostile detonation of a weapon, strikes, riots, civil commotions, malicious acts or acts of sabotage, confiscation, nationalisation, seizure by any government or local authority and hijacking without the consent of the insured
Commercial Umbrella Policy
Commercial umbrella policy provides cover to business owners, having huge amount of assets or those vulnerable to lawsuits. The policy may offer supplementary coverage for lawsuits, legal fees and settlements as well as for bodily injury and property damage claims not covered by other liability policies.
Under this policy, the insurer pays, on behalf of the insured, the loss in excess of the retained limit. The insured becomes legally obligated to pay by reason of liability imposed by law or assumed by law under an insured contract, due to bodily injury, property damage, personal injury or advertising injury to which this insurance is applicable.
Coverage
The policy covers:
- Bodily injury or property damage caused by an occurrence at any location during the policy period
- Personal injury or advertising injury caused by an occurrence at any location during the policy period
Limits of Insurance
The limits of insurance are as follows:
- Limit of insurance states that the insurer shall pay for all losses under this policy regardless of the number of:
- Insured
- Claims made or suits brought
- People or organisations making claims or bringing suits
- Coverage provided under this policy
- If the insured event is covered under more than one policy (this policy as well as an excess policy issued prior to the date of inception of the policy), liability under this policy shall be limited to any excess amount remaining post amount settlement through prior policy.
- Policy applies only in excess of the retained limit.
- Insurer (on behalf of the insured) is required to make prompt payment once the amount of loss is ascertained post settlement/final judgement).
Exclusions
This insurance does not apply to:
- Injuries caused intentionally
- Injury/liability caused by exposure to lead/asbestos
- Claims occurring as a result of defect, deficiency in insured’s product or service (property not physically injured)
- Bodily injury or property damage due to ownership, operation, maintenance or use, loading or unloading of watercraft or aircraft owned by the insured or rented to the insured without a crew
