Liability insurance is aimed at protecting your business against claims made by people if they or their property is damaged due to your business activities. Within liability insurance there are several different categories or types of liability insurance.
Employers’ liability insurance applies to businesses that employ staff. The insurance enables the business to meet the costs of damages and legal fees for employees who are injured or made ill at work through the fault of the employer. Employees injured can seek compensation provided the injury is due to an employer’s negligence. Even if the business goes into liquidation or receivership an employee can still seek compensation. The National Health Service can also claim the costs of hospital treatment and ambulance costs when personal injury compensation is paid.
By law, an employer must have Employers’ Liability insurance and be insured for at least 5 million. Typically, insurers automatically provide cover of 10 million. The employer must have insurance cover for all employees in England, Scotland, Wales and Northern Ireland.
The exceptions to having Employers’ Liability insurance is as follows:
1) If the business is not a limited company and a single person operates, runs and owns the business and/or only employs close family members,
2) Limited companies with only one employee, where that employee also owns 50 per cent or more of the issued share capital in the company,
The Health & Safety Executive (HSE) is responsible for enforcing the law on Employers’ Liability insurance. A business can be fined up to 2,500 for each and every day that they do not have the appropriate insurance. Even if the business falls into one of the exempt categories, they can still choose to have Employers’ Liability insurance.
An employee is defined as someone if:
1) The business cannot employ a substitute when the person is unable to work.
2) National Insurance contributions and income tax is deducted from the salary the business pays them.
3) They have a contract of service.
4) The business controls when, where and how they work.
For more details or guidance on definitions of an employee, check out some Employers’ Liability insurance policies, as these will have definitions of an employee.
To be valid an authorised member of the Association of British Insurers (ABI) must issue the insurance policy. The ABI website contains a list of authorised insurers.
When a business gets Employers’ Liability insurance they will receive an insurance certificate. This must be displayed in a suitable place where employees can read it. The business also has to make these certificates available to Health and Safety inspectors. Failure to display the certificate or show it to Health and Safety inspectors can result in a fine of up to 1,000.
It is advisable for businesses to keep a record of their Employers’ Liability insurance. Many damages suffered by an employee may not appear until some time in the future, perhaps even decades. If an employee or even a former employee makes a claim dating back years over something that has only recently surfaced, the business is at risk of meeting the full costs should they not hold the historical insurance records.