Hello, my name is Samantha Holland, I am a partner in our litigation team at Gowling WLG, with a specialism in insurance. With a collective 50 years' experience of working in the insurance sector, my team and I are usually the first point of call for our commercial colleagues when they are wanting to sense check an insurance clause in a commercial contract.
I appreciate that insurance can seem a bit like a minefield. At our recent ThinkHouse seminar my colleague Susannah Fink and I took on the role of a customer and a supplier negotiating an insurance clause in a fairly typical supply contract. Fortunately you will be spared my acting skills today but the idea of this video is for me to talk you through a few of the typical sticking points in the negotiation of an insurance clause and supplying a couple of things that you may be missing in those negotiations.
I am going to focus on one particular type of cover for the purposes of this talk being public liability cover which is probably one of the most common policies you will come across in an insurance clause.
So firstly what does that policy cover?
Well it covers the insured liability for claims made against it by third parties for personal injury or damage to their property. If a supplier or one of its employees does anything which causes one of your staff to injure themselves or does something that damages your premises, you will need to make sure that they have adequate public liability cover in place.
There are a few quirks to be aware of when it comes to a public liability policy.
Firstly, the policy will exclude cover for damage to property that is in the care, custody and control of the insured. The courts have given us some guidance on what that means in the 1982 case of Owen & Foster and that suggested that for property to be in your care, custody and control, it must be in your exclusive possession.
That is unlikely to be the case when your supplier is working on your premises when you still have the right to access and use those premises but it is something to think about if your supplier is taking your property offsite to work on it or they are delivering it somewhere as that may mean that the property is in their care, custody and control and they will be covered under their public liability policy for damage to that property. You will need to specify in your insurance clause that their policy includes a carve-out from the care, custody and control exclusion so far as your property is concerned.
Secondly, a typical public liability policy covers claims by third parties for personal injury or property damage but not financial loss. It is important to think about whether there is a risk that your supplier could do anything that might lead purely to a financial loss which is not consequent or part of any personal injury or property damage. For example a printing error in an ingredients list on your packaging that needs correcting. If so you will need to amend the insurance clause to require that your supplier includes a financial loss extension to their policy.
And finally, a typical public liability policy also excludes cover for liabilities assumed in contract that might not otherwise exist in tort. That is something that you need to bear in mind if for example there is an indemnity on your contract as there may then be some losses that you should be able to recover under the indemnity that you would not have been able to claim in negligence and which the supplier is not then covered for under their policy.
You will need to ask your supplier to add an extension to their policy or contractual liabilities.
So that is what the policy covers but you will also need to give some thought to how long the supplier needs to hold the insurance for and that depends on whether the policy is claims made or event occurring. Events occurring means that the relevant insurers who are liable for the claim are those who are on risk when the event occurred which may in the case of something like an industrial disease claim happening many years ago. If it is the only policy that you are asking your supplier to maintain on events occurring then they only need to maintain those for the period over which they are performing the contract.
Conversely, claims made policies mean that the relevant insurer who are liable for the claim are those that were on risk when the claim was made which could be many years after the event giving rise to the claim that occurred.
If the policy is a claims made one it is important that the cover stays in place for as long as there is a possibility that a claim might be brought against the insured. The claim made policy will include a professional indemnity policy or a directors and officers liability policy.
Now a public liability policy is an events occurring policy which means that it is acceptable for the insurance to be maintained during the performance of the contract and note I do mean performance and not duration. You may need the cover in place for as long as there are any ongoing post-contractual obligations.
There are also a few things to think about when deciding how much cover the supplier needs to maintain.
Firstly, you will need to agree an individual limit of indemnity, that might be a per claim limit or a per current limit but bear in mind that you may get a number of claims arising out of one occurrence and even when you have a per claim limit the policy will probably treat multiple claims arising out of the sale of current as one whole claim, so if your catering supplier uses an out of date ingredient in one batch which gives a number of people food poisoning the insurers will treat all of those as one claim. You need to give some thought to that.
You will also need to think about the aggregate limit which means the amount of money available to pay all claims in the policy period. If you decide to specify the per claim limit of £2 million but stay silent on an aggregate limit then your supplier could just take out a policy with a per claim limit of £2 million with an aggregate limit of £2 million which means that if there is one £2 million claim that would blow their limit for the whole of the policy period.
So specify a per claim and an aggregate limit.
Also consider the policy excess. This is the amount that the insured needs to pay before the insurer become liable. Now you will not want your supplier to have a really large self-insured excess before the insurance cover kicks in just in case things do not work out for them and you end up having to solely rely on the insurance cover.
So you may want to specify a maximum level of excess which is payable to each claim.
Also have a think about defence costs. Defence costs are often included in the limit on the public liability policy as they can erode the amount of cover available to pay a claim. You may need to think about whether you specify a limit that is exclusive of defence costs or make your limit large enough to include those.
Okay then, so we talked about how long the policy needs to be in place for and how much cover should be in place. Do you need to be insured on it?
As a customer you may need to think about what you are actually looking for that public liability policy to do. If your main concern is that the supplier is insured in relation to claims which you may need to bring against them, then you may not need to be named on your supplier's policy. But there may be circumstances in which you do want to the insured to be on your public liability policy for example, in circumstances where you both by incur a liability to a third party such as a contractor and they could sue you both.
If that is important to you do not accept any suggestion that you should simply be noted on the policy, that will not give you any rights under the policy itself and if your supplier invalidates the cover you will be left without any protection. Ideally in those circumstances you would be named on the policy as the insured but that does give rise to some other consideration such as who receives payment of any insured's proceeds, what happens if another insured invalidates the cover and how do you ensure that your supplier remains insured under the policy for claims which you bring against them even though you are also an insured.
However it is often difficult in practice to get yourself named on a supplier's policy, sometimes because they maintain group cover and other times because their insurer's resistance to this.
The supplier may suggest an indemnity to principles clause in their policy as a compromise and that is usually acceptable. Typically it would mean that you would be entitled to an indemnity under their public liability policy as their principal so that if you are stood alongside them as a result of their negligence their insurer will indemnify you too.
So having perfected your insurance clause, do not forget to monitor it. Remember to ask for and check copies of the policies to ensure they meet the requirements of the clause not only on entering into the contract but also at each policy renewal date.
You may also want to agree some sort of claims process so that everyone is clear on where they stand when it comes to making claims under their respective policies. For example you may need the other party to notify you if they become aware of anything that may give rise to a claim so that you can let your own insurers know and you may also need the other party to co-operate with you in the event of a claim by giving you access to documents and potential witnesses and your insurers may need that information to defend the claim.
So I appreciate that has been a bit of a rattle through some of the key points to think about from a public liability perspective when negotiating an insurance clause.
We have not been able to cover everything today but do please get in touch if you would like to discuss any of these issues or indeed need any support with drafting insurance clauses or any other insurance issue.
Thank you