The UK may lag some way behind the US in the ranking of most litigious nations, but recent years have seen a growing willingness to seek redress through the courts.
Increased red tape affecting all areas of life and developments such as ‘no win, no fee' adverts on TV have led to an increased awareness that where there's a problem, there's a potential cash bonanza. These days it is vital for all businesses to take every step possible to avoid the disruption and expense of being taken to court.
Employer's liability (EL) insurance is a legal requirement for those businesses with employees. The cover must be for at least £5m and the penalties for being caught without it are onerous: a maximum fine of up to £2,500 a day. There are even severe penalties for not displaying the insurance certificate or producing it on demand.
It enables businesses to meet the costs of compensation and legal fees for employees who are injured or made ill at work through the fault of the employer. There have been huge and long-running claims in recent years, a good example being related to asbestosis.
One potential area of complexity is how this law applies to sole traders. In 2005 the requirement for single person businesses to hold EL insurance was dropped but can still apply where they take on temporary or even voluntary staff.
Public liability (PL) insurance is not compulsory but is usually considered a key cover. This protects a business in the event it is found liable for injury or death to a third party, or for damage to a third party's property. Although a business may believe the risk of a claim is small, the rising costs of awards and legal fees in recent years mean a single large claim can be catastrophic for a business.
This is particularly relevant for businesses who send employees into customer's homes or business premises and also for those who allow public access to their own premises, such as shops, cinemas and hotels or leisure clubs. Most of the billions paid out by insurers each year are due to ‘slips and trips' or minor damage claims, but in the rare case where a company has been proved to have contributed to serious injury or death, the figures involved are huge.
The key point is that businesses do not underestimate their liability needs. Many EL insurance policies now include £10m cover as standard. For PL cover, typically the standard cover is £2m.
As well as EL and PL insurance, there are a host of other covers available to help businesses defend themselves against possible risks. Product liability insurance is not compulsory but will appeal to companies that make, repair or sell products in the event of a claim for damage or injury due to defects in design and manufacture, even if the company has not been negligent.
Most companies with premises will be aware of the need for property insurances for buildings when owned by the company, along with cover for contents such as office equipment and stock. Even those working from home can need advice on how best to tie in their domestic and business insurance.
Business interruption insurance compensates for an event that disrupts a business leading to loss of income and extra expenses. Cover against theft of money or goods either on the premises or in transit will apply to many companies. Separate legal expenses insurance can cover the costs of defending claims on employment or contractual issues while trade credit insurance can help deal with situations where bad debts or late payment impact on cashflow.
Finally, those who own and manage businesses are becoming more aware of the need to protect themselves against the impact of the decisions they make. Directors of companies do not have limited liability, their companies cannot indemnify them if it is forced out of business, personal assets can be seized, and the rules apply equally to large and small businesses. To guard against the risks of disgruntled parties, officers and directors insurance has been developed.
It is clear that businesses these days, from start-ups to long-established and successful companies, face what can easily be viewed as a mountain of rules and regulations along with all the attendant costs. But the helpful advice of a trusted broker can help them through the maze and reach the point where the risk of a single event destroying perhaps years of hard work is covered.
David Quick is managing director of CETA. For more information see www.lowerpremium.co.uk
