When asked “have you got insurance?” many clients respond with a resounding “Yes!, I wouldn’t be in my business without it!” On further cross examination, however, it becomes apparent that many businesses have insurance of some kind in place, but with little idea what risks are actually covered.
The time to find out is, ideally, not when a claim has been made against you!
Insurance is of course only one part of a comprehensive risk management strategy and we have briefly looked at other components – such as disclaimers - in this column.
This time we’ll take a look at some (but by no means all) of the common issues that I encounter from time to time.
One of the threshold issues is that insurance policies are anything but standard. Each insurance company provides its own version, covering or excluding cover for certain risks as the case may be. No two policies are identical. Accordingly the names given to insurance policies don’t necessarily mean much at all.
The point here is that simply by buying a policy called a “public liability” policy, you cannot be sure that the risks that you want covered will in fact be covered. The only way to be sure is to read the terms of the policy in full.
It might, for example, be common ground that a public liability policy is to cover you against accidental injury caused to others and that professional indemnity insurance is needed by those businesses at risk for claims that they have acted negligently in the provision of their services – but that is about all you can say without reading the policy in full!
I am often asked “How much cover should I get?” This is a terribly hard question for a lawyer because, if I was to reply “$10 million should be enough”, you can bet that the first claim made against the client that triggers the policy will be for $11 million or more!
The answer is (without being evasive) that you can never have enough cover. What this really means is that you have to do a risk assessment and determine what your risks are, what your appetite for risk is, and how much cover is economically appropriate for you given the premium costs.
Remember that if you are routinely doing transactions with clients having a dollar value of, say $1 million, that does not mean that claims against you are limited to that level – it depends on the risks of the transaction.
A high wire act may be dangerous, but the risk of the performer actually falling onto a member of the audience may be negligible if common sense precautions (set-back, etc) are applied. On the other hand advising a client on a particular event may expose you to the risk of a claim for negligent advice if the client, relying on that advice, suffers a substantial financial loss.
Risk is not “standard” and will vary from one event or conference to another. You may have sufficient cover one day, but not the next. In other words you need to closely monitor the actual risks you are undertaking. Sometimes, the risks of taking on a job may outweigh the fee you will earn (and the extra cost of insurance required) – or the exposure may simply be beyond your appetite for risk full stop. It is hard to do, but when this happens it is time to say “no” to the job.
One important issue that is, I fear, often overlooked is that insurance policies only provide cover for the insured party. In other words, if you take out a policy, it will usually cover only risks that come to fruition through your acts and omissions and those of your employees. It will not usually cover the acts or omissions of your independent contractors, consultants and subbies.
This is very important in the meetings and event sector, where many participants are organisers of conferences and events for their clients, and who engage external suppliers to bring the conference or event to reality. If you are a PCO or event manager, your policies almost certainly do not cover you for the negligence of your suppliers and contractors – this is why it’s essential for you to insist that these suppliers themselves have cover for the relevant risks in an appropriate sum – and that you get proof of the existence of that cover!
In recent articles and at every opportunity I have been exhorting the meetings and events sector to watch out for indemnities, for many reasons, but particularly because insurance policies routinely exclude cover for liability arising under indemnities. In short, if you give an indemnity to a client or to a supplier (such as a venue) your insurance is likely to expressly exclude cover for such liability.
North American exclusions
Insurance policies also often exclude cover for claims made in North America or respect of North American work that you may be doing. Many MICE participants do work for US clients and are involved in events, conferences and incentives that are to be staged at a North American venue. Because insurance companies are so wary of the extreme outcomes and legal costs associated with North American claims, they expressly exclude cover from their policies.
Special dangers such as pyrotechnics, dangerous activities such as mountain climbing and parachuting may also be excluded under some policies. Again, only by reading them can you find out.
There are other exclusions too, arising by operation of law. For example, under the OH&S laws, you could never get insurance for your liability, if found culpable – but you may be able to obtain cover for legal costs in defending a claim, so long as you are not found guilty of breaching the statute. Also, a policy will not protect you against some claims under the Trade Practices Act, in some circumstances. The statute says you are liable and it is against public policy for an insurer to provide cover for something proscribed by statute. Thus, some risks may be uninsurable.
There is also the problem of admission of liability. Insurers are subrogated to your rights. This means that the insurer effectively takes over the defence of the claim against you. Not surprisingly, insurers don’t want you admitting that you are liable because this may leave the insurer without a defence to the claim against you. As a general matter it is folly to admit any legal liability if you are intending to rely on insurance to cover the claim.
Before ending I should also say something about your obligations to communicate with your insurer. One such obligation is the duty of disclosure. This applies when you take out your policy. You must, by law, be scrupulously honest with the insurer in divulging circumstances that it may ask about, in determining whether to provide you with cover. Remember, insurance is all about risk and you need to tell the insurer everything that is material to its assessment of your risk. If you fail in this obligation, the chances are that cover will be denied, despite the fact that you have paid your premiums on time for many years.
Another communication obligation is the duty of notification. Failure to promptly notify your insurer of a claim against you (or, depending on the wording of the policy) failing to promptly notify circumstances that might give rise to a claim can lead to a denial of cover by the insurer. If an accident or event that may give rise to a liability on your part occurs, prompt notification is invariably necessary.
This is a big and important topic and we have only just scratched the surface. The “take-home” message is that you should regularly assess you risks and ask yourself “am I covered?” This question can only be answered meaningfully by gaining a clear understanding of the terms and conditions of your policies.
You should meet with your insurance broker regularly so that the broker understands your business and can help you make the right decisions on the cover you need.
For further details contact
Matt Crouch on (02) 8281 7800 or email mcrouch@bartier.com.au.
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