Get complete information on Employers Liability Insurance

Get complete information on Employers Liability Insurance

The genesis of employers’ liability insurance can be traced to the industrial development. It was, however, thought the employer had no more than ordinary duty of care to his employees.

Hence an employee injured as a result of negligent on the part of his employer had just the same right of action against the employer for damage as any other citizen had. The employer’s duty of care to his employees was to provide:

(a) A safe place of work;

(b) Proper plant, tools, machinery and working implements and for their maintenance in good working order,

(c) A safe system of work with adequate warning to the employee of any danger of which he might not be aware; and

(d) Competent and sober fellow employees.

It would appear that the duties of an employer were wide enough to encompass all situations in which an employee might be placed that would give him automatically a right of action against the employer and enable him to obtain damages.

The underwriting by insurers of employers’ liability arising under the status or in common law is a comparatively later development.

In India most employers’ liability policies are issued in respect of their liability under the Fatal Accidents Act 1955, the Workmen’s Compensation Act 1923 and common law. In India these are referred to as workmen’s compensation policies.

The Fatal Accident Act was nevertheless an inadequate measure, as it made no provision for the employees who were not killed but were maimed and totally or partially disabled. The Workmen’s Compensation Act 1923 filled the gap and also made employers’ liability more neigous.

Though the liability of employer under the Act for accidental injuries sustained by his workmen arising out of and in the course of employment is absolute, in certain circumstances employer is not liable.

Section 3 of the Workmen’s Compensation Act 1923 provides that the employer is not liable to pay compensation in respect of any injury not resulting in death caused by an accident which is directly attributable to-

1. The workmen having been at the time of injury under the influence of drink or drugs,

2. The willful disobedience of the workmen to an order expressly given or a rule expressly framed, for the purpose of securing the safety of the workmen, or,

3. The willful removal or disregard by the workman of any safety guard or other device which he knew to have been provided for the purpose of securing the safety of the workman.

An employment injury which may be personal injury sustained or an occupational disease specified in the Workmen’s Compensation Act contracted by a workman in the course of fulfilling his duties to his employer. An occupational disease peculiar to an employment which a person exposed to the vigor’s of that employment contracts.

Classification of Risk and Coverage :

In India the business of Workmen’s Compensation Insurance is governed and regulated as to underwriting coverage, proposal and policy forms and endorsements by the Workmen’s Compensation Tariff. The tariff is administered by the tariff advisory committee, which is a statutory body set up under Section 54 of the Insurance Act 1938.

The tariff applies to all policies issued to employees to provide reimbursements of compensation to their employees in respect of accidents and occupational diseases. The tariff provides three forms of insurance, viz.-

Table ‘A’ Table ‘B’ Table ‘C’:

Whatever may be the form of cover issued, no policy is to be issued to cover liability in excess of that provided by the tariff forms of policies and endorsements unless specifically authorised and no policy is to be issued which does not include all employees (other than individuals employed on monthly wages exceeding Rs. 500) in the Insured’s Service.

The premium to be paid has to be calculated on the total wages of the employees, since the actual wages may not be available in advance, a provisional premium calculated on the estimate of the total wages is paid and at the expiry of the policy the actual premium is calculated on the actual total wages and the difference between the provisional and the actual premium is made good a further payment by the insured or a refund by the insurers as the case may be.

Policy Form :

The Policy form is prescribed by the tariff and all insurers have to use the form. The wording is the same for all the three tables A, B and C except that when a table ‘A’ policy is to be issued, the laws in respect of which the policy is issued are to be mentioned in the schedule in the space provided therefore viz.

The Workmen’s Compensation Act, 1923 and subsequent amendments to the said Act prior to the date of the issue of the policy and the Fatal Accident Act 1855.

Extensions to the Policy :

The extensions granted are as follows:

(i) The tariff permits the inclusion of the risk of the insured in respect of the employees of contractors at a premium calculated at the tariff rate for the work contracted for;

(ii) Where the insured are themselves contractors to a certain Principal, policy may be extended to include the vicarious/liability of the principal.

(iii) Occasional domestic labor may be covered for common law (tortuous) liability at an additional premium of 25% of the premium charged for the permanent servants. When no permanent servants the charge for occasional domestic labor must be a minimum of Rs. 6.25 to cover legal liability only.

(iv) Table ‘A’ and ‘C’ policies may be extended on the following scale and provide for the payment of medical, surgical or hospital expenses (including cost of transport to hospitals) incurred by the insured.

Additional Premium:

The Proposal Form:

An employer desirous of insuring himself against his liability arising under the Workmen’s Compensation Act, 1923, the Employer’s Liability Act 1938, the Common Law and Fatal Accident Act, 1855, has to approach the insurer for this purpose. He has to fill in and submit a proposal form to the insurer.

The particulars required in this form are the proposer’s name, proposer’s business, address, proposer’s trade or occupation, particular hours work, description of employees, estimated number of employees, estimated annual wages, salaries and other earnings, insurance cover required and other particulars regarding the nature of the work done in the employer’s premises.

The proposer has also to state whether any proposal or renewal of insurance of his liability was never declined or (withdrawn). Finally he has to sign the declaration to the effect that every information supplied in the proposal form is correct. Any concealment or misstatement of material facts will render the policy void.

Duration :

The tariff makes it compulsory for all policies to be issued for 12 months. The exceptions are:

1. Policies which may be issued for a period in excess of 12 months where an additional odd period is required to make a policy renewable on a particular date to meet the convenience of the insured.

2. Policies which may be issued for a period less than 12 months in cases of specific contracts or work which will be completed in less than 12 months provided the policies are written for the full period involved.

Employees State Insurance Act, 1948 :

The scheme envisaged under the Act applies compulsorily to all persons working in factories using power and employing twenty or more persons but seasonal factories are excluded; so also the dependents of workers in perennial factories. The scheme is applicable only to Industrial workers and excludes agricultural laborers.

The scheme provides for five-fold benefits, namely, medical, sickness, maternity, disablement and dependents.

Medical treatment is provided free of charges to the sick insured persons; and this medical cost is provided through the panel system of the doctors. Under this system, panel of approved doctors is drawn up and the insured person is given the choice to select his own doctor from among the list.

The insured is qualified to receive benefit during the benefit period if he has paid at least a minimum number of twelve weekly payments in the course of sixteen weeks or two-thirds of the number of week in the ‘Contribution period’.

The amount of cash sickness benefit is about half the daily wage of the insured person. He can claim it for a maximum of fifty-six days in any period of 365 days.

For the administration of Employees State Insurance Scheme, a statutory corporation known as the Employees State Insurance Corporation has been established. The scheme is contributory, the contributions to be paid by both the employer and employees.

The amounts of compensation are on a scale more liberal than those payable under the Workmen’s Compensation Act. The Employees State Insurance Act comes into force at the very region where it is interested to extend by a notification by the Government of India.

In the case of risk coming under the purview of the Employees’ State Insurance Act 1948 it is permissible under the tariff to issue separate table ‘B’ or ‘C’ ‘Workmen’s Compensation Policies covering those members of staff who are not ’employees’ within the meaning of the Act provided all, such employees (other than individuals employed on monthly wages exceeding Rs. 500) in the insured’s service are included hereunder.

Fidelity Guarantee Insurance:

Fidelity Guarantee is one of the main classes of insurance written in the accident department.

As a handmade of business and commerce, it is an essential insurance protection; for it seeks to indemnify the employer against direct pecuniary loss that he may sustain through acts of fraud or dishonesty by an employee in the course his employment.

The basis for a fidelity guarantee originates from an employer and employee or a fiduciary relationship where confidence or trust reposed plays a crucial part.

Broadly, fidelity guarantee business can be divided into the following sections: (i) Commercial Fidelity Guarantees, (ii) Court Bonds, and (iii) Government Bonds.

Types of Policy:

The following types of policy are in general demand:

(a) Individual Policy:

This type of policy is used where only one individual is to be guaranteed.

(b) Collective Policy:

Where the entire staff or a number of selected individuals are to be covered, a collective policy is issued.

(c) Floating Policy or Floater:

This is an extension to the collective form of contract in which the names and duties of the individuals to be covered are inserted in schedule but instead of individuals amounts of guarantee a specified sum of guarantee is floated on the whole group.

(d) Positions Policy:

This is similar to a collective policy with the difference that instead of using names, the position is guaranteed for a specified amount so that a change in the person holding the position does not affect the cover.

It is noted to be that the liability of the insurers in respect of each position remains limited to the amount guaranteed for the irrespective of the number of persons acting in that position.

(e) Blanket Policy:

This policy covers the entire staff without showing names or positions. No enquiries about the employees are made by the insurers. Such policies are only suitable for an employer with a large staff and the organisation to make adequate enquiries into the antecedents of employees.

(i) Excess Floating Policy:

This is a combination of collective policy and a floating policy. Proposal Form (Employer’s Form)

Several different types of proposal form are in use for the various classes of fidelity guarantee. For commercial guarantees the employer has to complete an employer’s statement. This statement may be likened to the proposal form as it forms the basis of the contract between employer and the insurers.

Commercial Fidelity Guarantee Application Form:

The application (the person to be guaranteed) has to fill in an application form which requires in addition to his name, age and address the name, address and business activities of the employer, the position to be covered by the guarantee, the salary or other remuneration to be received, details of past guarantees also details the applicant’s status (single or married) and dependents, if any.

The extent of debts, private income, whether or not the applicant has ever been bankrupt or insolvent, details of past employment, whether he is house-holder and owns furniture and details of his life assurance are also required.

Private Referee’s form:

At one time great significance was attached to private referees’ forms. This is a form which may be sent to persons whose names and addresses have been supplied by the applicant.

Previous Employers’ form:

A reference for the applicant from all the employers for the previous five years in an important underwriting tool to the insurers. This form is only for the proof of applicant’s integrity and honesty.

Collective Proposals :

For collective floating and blanket policies, individual applicants’ forms are dispensed with. The employer has to set out in a statement all such particulars relating to the employees to be covered as are required for individual policies.

Underwriting Considerations :

The main considerations are employers’ style of establishment, methods of selection of employees, working conditions generally emoluments and benefits in relation to responsibilities and other organisation and how far the system of check and control measures are effective and what supervision is exercised over the employees.

To improve the risk, the insurers may make suggestions to the employer for tightening up the system of check. But where the system is fundamentally unsatisfactory no piece-meal improvement is of any avail. An entirely new system may have to be agreed upon.

Risk Covered :

The perils covered are variously described under different insurers, but the risk of pecuniary loss to the employer by reason of breach of trust misuse of office is uniform. The normal wording runs as follows:

The employee shall in the course of the duties, specially commit any act or acts of forgery or of embezzlement, latency and fraudulent conversion of moneys or goods of the insured the insurer will make good to the Insured any loss which the insured shall there by directly sustain up to an amount not exceeding the amount Insured.

Following points should be noted in connection of Risk:

(i) The cover granted is against a direct pecuniary loss and not a consequential one;

(ii) The pecuniary loss should be sustained by the insured in respect of the moneys or goods; and

(iii) The act should be committed in the course of the duties specified. Period of Discovery

Unlike other classes of business, fidelity guarantee policies stipulate time limit for discovery of losses. This is also because the loss can occur over a long period without discovery. Investigation of such losses would be troublesome and recoveries may become legally and practically difficult.

The customary time limit provided is that the act or acts insured against should be discovered not later than six months after the resignation, dismissal, retirement or death of the employees or not later than three months after the termination of the policy.

Whichever be the earlier the time limit may be increased up to 12 months, if the insurers agree to it.

Some of the important conditions are considered here viz.-Application of control measures, notice of claim, prosecution condition, subrogation and contribution.

Hazardous Risks :

Not all risks proposed for insurance are accepted at normal terms; certain risks are considered not good for insurance because of the very high degree of hazard associated therewith and the high incidence of claims. A representative list of such risks is given below:

(i) Collection agents whose financial limits are disproportionately high compared to their remuneration and the security deposit given by them;

(ii) Jewellery Travelers;

(iii) Cashiers in eating houses, cinema houses and other places of entertainment;

(iv) Estate Agents;

(v) Treasurers of friendly societies of Associations;

(vi) Employees of Bullion merchants, antiques, furs and other valuables.

Service Security Policies :

Another offshoot of the fidelity guarantee business is guaranteeing a minimum period of service an employee has agreed to render an employer in return for the training imparted to him by the employer in enabling the employee to acquire qualifications. In the event of failure by the employee to honour his commitment, the policy has to pay the amount guaranteed.

Here again it is doubtful, whether this type of policy falls within the province of fidelity guarantee though some insurers are inclined to treat breach of minimum service conditions a default and write the business in the fidelity guarantee department.

Rating of Fidelity :

Guarantee Business premium under individual and collective policies is charged as a rate per cent of the amount guaranteed subject to a minimum premium. The rate per cent varies from risk to risk depending upon the merits of each case. Generally speaking it ranges from 0.25% to 1.50%.

The premium for a floating policy comprises a percentage charge and a per capita charge. The percentage change is applied on the amount guaranteed and the per capita charge on the number of employees to be guaranteed.

For example, if a floating policy has to be issued covering 200 employees for an amount of Rs; 2,00,000 and the percentage change is, say, 1%, and per capita charge of Rs. 5, the premium payable would be Rs. 3,000 arrived at as shown below:

A minimum premium is always insisted upon because the expenses accruing of proposal, issue of policy, stationery, cost etc., would be the same whether the cover is for Rs. 1,000 or Rs. 1,00,000.

Extensions under Fidelity Guarantee Policies :

It is not unusual for employers to ask for extending the conventional Policy to cover negligence or lack of care on the part of the employee, government departments, the Posts and Telegraphs Directorate Railways and many.

Public Sector institutions, as a rule, demand such extension. Since the terms of negligence and lack of care do not admit of precise definitions it is not a safe underwriting proposition to cover them. Nevertheless, some insurers to cover such risks.

Administration Bonds :

The appointment of the administrator is made by the Court by the grant of letters of administration spelling out the duties and obligations of the administrator.

The amount of bond is stipulated by the court making the appointment and it depends upon the value of both the real and the personal estate of the deceased. The administrator may be an individual or a corporate body but whoever he is, he would be thoroughly screened by the court before making the appointment.

All the same insured that have to be satisfied about the bona fides of the applicant for the bond have to make exhaustive enquiries before accepting the proposal.

Unlike a commercial Fidelity Guarantee Policy, an administration bond is a specially contract to be executed under seal and it attracts stamp duty higher than the ordinary policy.

The stamp duty varies from state to state depending on the rules framed under the Stamp Act. An administration bond provides for payment up to the amount guaranteed as a Penalty on demand and hence considerations of utmost good faith, disclosure of material facts etc. would not arise.

Only in the event of fraud, the insurers can raise a plea of no liability before the court, but the onus of proof that the bond was obtained fraudulently rests on the insurers.

Difference between Commercial Guarantee & Court Bonds :

1. Commercial guarantees are simple contracts, whereas court bonds are specially contracts executed under seal.

2. The proposal made by the employer is the basis of a commercial guarantee and it is deemed to be incorporated in the policy and hence any misrepresentation or inaccuracy in the proposal will make the policy void or voidable.

In the court bonds the proposer does not form part of the contract and hence the contract is not affected even if the proposal contains materially inaccurate particulars.

3. The commercial guarantee is subject to conditions the breach of which may render the policy void or voidable, but no such conditions are incorporated in court bond.

4. Commercial guarantees are normal annual contracts which the insurers may renew at their option. But court bonds are automatically renewable, unless the insurers give sufficient notice to the court of their intention not to renew the bond.

5. In a court bond the person guaranteed is a party to the contract, whereas in commercial guarantee he is not.

6. In order to obtain a payment under a commercial guarantee the insured has to prove to the satisfaction of the insurers that he has suffered a pecuniary loss arising out of the insured contingencies.

In a court bond a demand from the appropriate authority of the amount guaranteed for a failure in the discharge of duties or obligations by the person guaranteed is sufficient.

7. Commercial guarantees are stamped with an ordinary insurance stamp, while court bonds have to be stamped in accordance with the stamp duty.

8. The cover under a commercial guarantee is restricted in scope as compared with that under a court bond.

9. Commercial guarantees prescribe time limits within which the insured has to intimate defaults to the insurers. Court bonds are not subject to this restriction of time limit.

Government Bonds :

Government bonds are like court bonds. They can be classified into parts viz. custom bonds and excise bonds.

Custom bonds are to be executed by importers in favour of the controller of imports and exports agreeing, inter alia, to perform the conditions stipulated in the import trade control regulations.

Excise bonds are to be executed by manufacturer in the country in respect of finished products assembled or produced in the company which are dutiable.

The excise is to be paid to the Excise Department in lieu of which a bond may be executed. Manufacturers of alcohol, sugar, textiles automobiles etc. are the categories of persons are required to execute the bond.

Liquidators and Recover ship Bond :

Estates which are under dispute and referred to the court for adjudication are temporarily placed under the care of a receiver during the pendency of the case.

The receiver has to administer the estate and render proper accounting of the estate when under his care to the court.

A receiver may also be appointed to administer the estate of a minor who is placed under the court of wards till he attains majority or of a person who is pronounced mentally incapable.

Liquidators are appointed by the court to deal with the estates of persons who filled insolvency petitions before the court or are declared insolvent by the courts.

Unlike the receivers, the liquidators have to meet the claims of the insolvent’s creditors and realise amounts due to the insolvent’s estate from his debtors. The liquidator has to produce a bond guaranteeing his honest and faithful accounting of the estate.