Public Liability – A financial loss waiting to hit your business?
It has been reported this month that a teenager has won a £3m legal battle against her ex-boyfriend’s family after she fell off a “badly trained” horse and broke her back. (see our tweet dated 20th November 2016). She suffered very serious injuries and is now paralysed. Clearly, the effect on her and her family have been devastating.
A judge set the £3m compensation level against the owner of the horse. The real problem is the paying of the compensation. The owner only had a limited level of public liability cover, not enough to cover the £3m. It is likely there is a serious shortfall and this will have to be found from the owners own resources. For some people, this would bankrupt them.
This payout comes on top of the estimated whole of life £23m payout in 2012 to a young girl following a car accident. She sued the driver of the company vehicle that caused the accident.
Claims payouts like this have the potential to encourage others to pursue actions. A precedent has been set and payouts are getting higher. It also has the potential to push up insurance company premium rates.
From a business risk perspective this now means that levels of public liability insurance protection should be reconsidered. Most companies buy Public Liability insurance (many private individuals have cover under their home insurance policies) as a result of their legal requirement to show a duty of care to third parties.
A corporate organisation’s duty of care is very complex. In basic terms it is the standard by which one would expect to be treated whilst one is in the care of another. Once a breach of duty of care has been established, an action brought in a common law court would most likely be successful. Based on the injuries and the losses of the applicant the court would award a financial compensation package.
A company’s public liability insurance should provide cover if employees negligently injure customers or members of the public.
The problem now arising is what level of cover do they need?
It is our recommendation that businesses look to maintain a minimum of £5m to cover payouts and legal costs. At the moment, the cost difference between £1m or cover and £5m of cover isn’t huge depending on a business’s trading activities.
We very much appreciate that companies always seek to keep insurance costs to a minimum but there is no point in buying insurance cover if it isn’t going to pay out enough if your lose a public liability claims against your business. Increasing levels to £5m or more will give reassurance to the board of directors, investors and other stakeholders.
If you would like to discuss if your current levels of Public Liability protection are likely to be adequate, please get in touch with us as soon as possible.