Employers liability insurance

Businesses of all sizes have become used to increasing insurance costs. For some, insurance has become so expensive that they have been driven out of business. There have been reports that firms, exasperated by rising costs, have been operating without either public liability insurance (optional) or employer's liability insurance (compulsory). The government has acknowledged the seriousness of the situation and has taken some steps to address business concerns. It has encouraged insurers to take clients' health and safety records into account when assessing the cost of cover. And, with effect from April 2005, small companies that have no employees apart from the owner/director do not have to carry employer's liability insurance.This change affected almost 300,000 single member companies. So, some progress has been made. However, a new development has now come along which risks reversing any gains that have been made since the compulsory insurance rule was scrapped. As of 29 January, a long-dormant provision in the Health and Social Care (Community Health and Standards) Act 2003 has been activated. The provision allows the NHS in England and Wales to recover the costs of treating those who have incurred any sort of injury and who have successfully sued a negligent party for compensation. Equivalent steps are also being taken in Scotland. For many years the NHS has been able to recover from insurers the costs of treating those injured in road accidents who have gone on to make a successful claim for compensation. But this long-standing situation is now to be rolled out to cover other accidents, such as those in the workplace, as long as some party (most obviously the employer) is held to have acted negligently and found liable to pay compensation to the injured party - ie. the employee. Any resulting NHS treatment costs can be claimed back by the NHS from the employer. Similarly, if a client suffers an injury in or around the employer's premises that is held subsequently to be the responsibility of the employer, again the NHS will be entitled to recover the treatment costs. In both cases, the costs will be met by the employer's insurance policies. The one exemption to this is where the employer's policy has an upper limit on the amount of cover provided in a personal injury case (as opposed to a lower limit or excess figure), the insured party - the employer - will be liable for the remainder. So if, for example, the NHS claim is for £30,000 and the employer's cover is only worth £25,000, the employer will be responsible for the remaining £5,000 of the claim. The effect of the change is that businesses stand to pay whether they have insurance or they don't. Research carried out last year by Lloyds TSB suggests that more than one million small-to-medium sized employers are operating at serious risk because they do not have proper business insurance cover; even those firms that do have cover, only half are fully covered by the right insurance. Where an employer decides not to take out either employer's or public liability insurance, it will not be able to look to any such policy to fund the compensation and any consequent claim from the NHS. If the employer does not have insurance cover, then the employer will have to meet any treatment claim from his own resources. The NHS's claim will be capped at £37,100. So the most serious cases, such as long-term treatment for fractures or stress-related conditions, will not lead to an indeterminate liability. Not only this but any contributory negligence on the part of the injured employee or customer will be taken into account in attributing liability to the employer. Accordingly, any business facing a claim is entitled to press for full acknowledgement of, for example, any failure by an injured worker to wear any protective equipment he had been directed to use. But given that the cost of calling an ambulance is put by the government at £150 and the cost of daily hospital treatment at nearly £600, the costs will soon mount up. And what it means overall is that some employers will face not only the cost of paying compensation to the injured party but also the cost of treating that party for their physical and possibly psychological injuries. The only real answer for businesses is to ensure that they take their health and safety responsibilities seriously, and do all they can to mitigate the risk of staff or customers incurring injuries that may give rise to compensation claims and subsequent medical treatment. The insurance industry is making an effort to engage with the business community on these lines and companies are prepared to reflect responsible business practices in their rates. To try to minimise their exposure to the inevitable general rises in premiums, businesses should be prepared, before their next renewal date, to conduct an audit of their health and safety procedures. They should also review the proper functioning of all mechanical equipment and reassess their operations for any possible weaknesses in materials, fabrics, training needs and premises maintenance. Time and expense incurred in doing this, and documenting any improvements made, may prove worthwhile in the long run.

• For more information see www.dh.gov.uk