Choosing the Right Level of Indemnity Insurance

When you take out public liability insurance, you’ll need to choose the level of cover you need. You’ll set a cover limit of £1 million, £2 million, £5 million or £10 million to protect your business if a claim is made against you. Choosing the right level of cover to suit your enterprise can be daunting, and it may be tempting to opt for a lower level and a potentially cheaper premium.

Before you choose your indemnity insurance limit, take some time to consider which level of protection you may need if things go wrong.

If you’re not sure where to start, it’s an idea to research the different types of liability claims that can arise in your line of business. If members of the public visit your business premises, there are all kinds of accidents and injuries that can lead to a public liability claim, including trips and falls, any injury from objects and obstructions and hazards.

In some ways, the level of cover you need will be dependent on the kind of business you’re running. Higher risk businesses require higher levels of indemnity cover. Things like regular interaction with the public and dealing with hazardous materials can mean your business is higher risk, whereas you may be lower risk if you only deal with your clients remotely.

Your level of cover can also be determined by your business’ size. If you are responsible for several employees, your requirements will be higher than if it is just you.

A number of factors come into play when calculating liability claims:

• Investigative costs - The cost of the initial investigative work (loss adjuster, checking all the third parties background etc and financial accounts). This can include third party investigative costs.

• Legal fees – for both claimant and your personal legal costs/defence

• Medical fees – Can include both short term expenses as well as long-term costs associated with the illness/ injuries incurred as a result of the actions by your business.

• Future care needs - If claimant is injured for life e.g. paralysed then you will need to factor in the cost of care. This could mean a home needs to be purchased/specially adapted for and may require round the clock care for the rest of their life.

• Loss of earnings – If the claimant is unable to work for an extended period or can no longer perform the job and is forced to make a career change to a role with a lower salary.

• Physical damage - Any damages to the property. For example, if the property needs to be repaired or if it has been burnt down entirely and has to be rebuilt.

The costs of liability claims are continuing to rise and given the current climate, you may wish to consider a higher limit of indemnity. Some facts to consider include:

• Settlement figures - Settlements also take into account any loss of earnings as well as future medical and care costs for any or all of the claimants. As a result, this could quickly use up your limit of indemnity which potentially could leave you exposed if costs start to exceed this amount.

• Changes to the Ogden** Discount rate (ODR) in 2017. This ODR is the mechanism used to decide how much people suffering long term injury can claim from their insurance. It is a complicated calculation requiring assumptions not just on lifespan of claimants but also their long term care costs, future economic conditions and how they are likely to invest their money. The ODR was lowered in 2017 and this lower rate along with rising interest rates has meant that insurance companies are now receiving higher claims.

The cost-of-living crisis is also affecting the costs of insurance liability claims, and there have been significant increases in damages awarded by the court. This could mean a claim could be more than the level of cover you now hold.

To illustrate how settlement figures have changed, a claim for a badly injured 18 year old male:

• £25,000 loss to age 65 has risen from £688,250 in August 2017 to £1,228,750 today**

• £75,000 loss for life has risen from £2,502,000 in August 2017 to £6,042,000 today**

Don’t forget that if you have one serious claim on your policy, it could involve multiple injuries and claimants rather than just one individual, making claim costs even higher. You therefore want to make sure you have the right level of indemnity cover in your public liability policy.

If a claim is made against you by a third party, you may find yourself liable for their medical expenses, loss of earnings and their legal fees. Costs like these can escalate quickly, so it’s important that you have the correct level of cover in place.

The need to have a higher Indemnity limit is commonly recognised by public bodies, such as local councils, the NHS and some government funded programmes who might insist on a minimum limit of indemnity of £5M in order for anybody to undertake work on their behalf.

It’s also a legal requirement that details of your insurance certificate are displayed where any employees can see it.

It’s easy to adopt the mentality that “it will never happen to me”. Especially when you are in a role that you have been in for a number of years and feel fully competent, but mistakes do happen, and even small mistakes can result in disasters. You could be doing the same job you’ve done countless times before and on that particular day something may not go according to plan. Here are three real case studies from three Everywhen customers who fell victim to disaster:

Case study 1

Our customer operated a company that serviced vending machines. After a visit to a client’s premises to service a vending machine the premises burst into flames, the tradesperson responsible was blamed and the client made a claim to seek damages. This claim went on for several years and resulted in a £2 million settlement for the client. If the tradesperson had only taken indemnity cover of £1m, he would have been severely out of pocket.

Case study 2

A property management company we insured, was in the process of renovating one of the properties they had bought with the ambition to let it out. As part of the works, they hired a company to manage the work who subsequently employed qualified tradespeople to undertake the necessary renovations. Once the renovation was complete, a young family with a three-year-old son moved in. The young boy was severely injured and left with brain damage when the marble fireplace fell on him. Despite the work being done by qualified tradespeople and being inspected and signed off following completion, the family sued the company and tradespeople responsible, claiming that the marble fireplace had not been properly secured. The settlement reached was over £2 million.

Case study 3

Another property owner who had insurance with us, was in the process of refurbishing his rental flats and hired a separate company to manage all the refurbishment works. Following the completion of the work, a young man in his 20s moved into the property. One day, the tenant turned on the light. Unfortunately, there was a gas leak which resulted in severe burns, and he was disfigured for life. The young man decided to sue, and a £2 million settlement was agreed against the gas fitter’s insurance.

Increasing your level of indemnity cover is quick and could cost less than you think. Please contact our specialist advisers who can provide you with public liability insurance quotes to increase your cover.

Sources

• **The figures are taken from Ogden tables which are used by lawyers, actuaries and other experts to assist Courts in assessing lump sum awards for damages to be paid in compensation for financial losses or expenses (such as care costs) directly caused by personal injury or death.