Underwriters Urge Clarity On Employer Liability Cover

By Lucia Osborne-Crowley
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Law360, London (January 12, 2021, 1:44 PM GMT) -- A global insurance trade body said on Tuesday that it has drawn up a guide to give policyholders and insurers a better understanding of contingent employers' liability insurance, a product that has come under close scrutiny during the COVID-19 pandemic.

The International Underwriting Association has published its guidance on a type of cover that it said "can be inherently complex and difficult for clients to understand." The extent of employers' liability has come under scrutiny as some offices reopen after months of home-working during the coronavirus outbreak.

"If the insurance industry is to expect clients to fully understand the product, it must have clarity on what each contingent employers' liability term means," Chris Jones, director of legal and market services at the association, said. "Different types of cover are designed to address different elements of the risk, so any confusion in this area reduces transparency about when a policy would respond."

Jones added that company chiefs and insurers should understand what their policies do and do not cover.

"Understanding the needs of the client is crucial to providing the right cover, and insurers need to be in a position to fully understand and manage their exposures," he said.

The IUA said the clarification was required because it had found that many policies were using differing terms in employer liability. Definitions such as as "excess," "contingent" and "residual" were being used interchangeably, even though they are meant to refer to different types of policies.

Excess cover provides for any compensation for employees that goes beyond the total indemnity set out in the policy, the IUA said. Contingent cover is used as a catch-all for compensation where another, more specific, policy has failed to respond; residual cover protects employers against claims for injuries where part of the claim is covered by state benefits.

"Contingent employers' liability can be a valuable and cost effective product, reducing the need to buy full local policies," Jones said.

Employers' liability cover has been a hot topic during the COVID-19 pandemic. The Prudential Regulation Authority called on insurers in November to address uncertainties created by the COVID-19 crisis when they estimate their business losses, amid concerns that they are failing to keep track of important information about policies.

Employer's liability is a major area of insurance that could be affected by the coronavirus if employees fall sick at work, the PRA said. Other types of cover that are affected include director's duties and business interruption — which has been the subject of a major court battle after many insurers refused to pay out claims linked to COVID-19.

Insurer Marsh warned in September that company bosses should check their employer liability cover as offices reopen, because the many months that buildings have sat empty could lead to the spread of diseases such as the the deadly Legionnaires' Disease, spread by bacteria.

--Additional reporting by Irene Madongo and Martin Croucher. Editing by Ed Harris.

Clarification: This story has been updated to clarify that the guidance was on contingent employers' liability insurance.

For a reprint of this article, please contact reprints@law360.com.

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