INSURANCE CAN LIMIT ORGANISATIONAL OR INDUSTRIAL LIABILITY COST
Maxam Company Limited, the company whose mining truck was involved in the Appiate disaster, has been fined 6 million dollars. According to the statement, Maxam shall pay the fine of one million United States dollars (US$1,000,000.00) or its cedi equivalent at the prevailing commercial rate before the restoration of its permit to manufacture, store, supply, and/or transport explosives. Per the statement given the demonstrable cash inflows of Maxam and their current circumstances, the remaining five million United States dollars (US$5,000,000.00) shall be paid in eighteen (18) equal monthly installments, beginning from 1 March 2022 to 1. August 2023 (Atinka online).
The main goal for most businesses is to earn a profit. Generating profits in a business environment often indicates that an organization is offering goods or services desired by consumers at a reasonable price. Developing a strong clientele and a competitive advantage against other companies in the market may require much time and effort on management’s part as it seeks to produce desirable goods or services that produce profits. Business organizations that cannot complete these functions may face the prospect of losing money from their operations and dealing with the consequences of financial loss.
Again, there are so many other ways that organisations or industries could lose money. One of them is through the negligence of their responsibilities towards staff, third parties, other institutions, and the society as a whole that could result in a legal suit against them. This could bring so much cost to them. A clear example is a recent explosion at Bogoso Apiatse.
All organizations have liability loss exposures. To properly identify, analyze, and treat an organization’s liability loss exposures, risk management, and insurance professionals must first understand the concept of legal liability and the common sources of these exposures.
Legal liability can be imposed by civil law, criminal law, or both. Liability insurance covers liability imposed by civil law. Insurance for criminal liability is not permitted by law. Any wrong against society, criminal law would impose a penalty against you. Civil law protects rights and provides remedies for breaches of duties owed to others and this is a classification of law that applies to legal matters not governed by criminal law.
A single act can constitute both a civil wrong and a crime in some instances. For example, if a vehicle driver cause death to a pedestrian, law enforcement agencies may charge the driver with manslaughter, a crime. The driver may also be subject to civil action by the estate of the deceased pedestrian for medical bills, funeral expenses, loss of support, and other damages that the law allows. Insurance coverage would not respond to the criminal charges. It could, however, provide payment for the civil claims.
Legal liability is the legally enforceable obligation of a person or an organization to pay a sum of money (called damages) to another person or organization. Legal liability can be based on tort, contract, or statutes.
A tort may be a civil wrong (also referred to as a private wrong). Most of the insurance claims covered by liability are based on tort law, which protects the rights of individuals. These rights include the right to security of person, property, reputation, and privacy. Where a right exists, others have a corresponding duty to respect it and to refrain from any act or omission that would impair or damage it. Any wrongful invasion of legally protected rights entitles the injured party to bring legal action against the wrongdoer for damages. The numerous types of torts fall into three broad categories: negligence, intentional torts, and strict liability torts.
Negligence is based on four elements. Each element must be present for a negligent act to qualify as the basis for a negligence tort. A motorist who drives at an unsafe and excessive speed and, as a result, causes an accident that injures another motorist has committed the tort of negligence. In contrast, a driver who narrowly misses another vehicle hasn’t committed the tort of negligence, although the act was perhaps negligent. The motorist whose vehicle was narrowly missed will not have the basis for recovering damages from the other driver because no actual loss or damage occurred.
An intentional tort does not necessarily have to be performed with malicious or hostile intent. An example of an intentional tort is libel, the publication of a false statement that damages a person’s reputation.
Strict liability (or absolute liability) is a liability that is imposed even though the defendant acted neither negligently nor with intent to cause harm. Strict liability, for example, can result from owning wild animals or performing ultrahazardous operations such as blasting.
Contracts also impose legal liability aside from tort. If one party fails to honour the contractual promise, the other may go to court to enforce the contract. Liability based on contracts can arise out of either a breach of contract or an agreement in which one party assumes the liability of another.
A breach of contract is a failure to fulfill one’s contractual promise. A common type of breach of contract involves the promise made by a seller regarding its product. If the product fails to fulfill its promise, the warranty/promise has been breached, and the buyer can claim against the seller.
In addition to torts and contracts, statutes are a third major basis for imposing legal liability. Written laws at the local level are usually referred to as ordinances. Statutes and ordinances can modify the duties that persons owe to others. Thus, the duties imposed by statute or ordinance may be used as evidence of a person’s duty of care in a tort action. A statute can also impose legal liability on certain persons or organizations regardless of whether they acted negligently, committed any tort, or assumed liability under a contract.
Liability Insurance Coverage
Liability coverage protects both the insureds and the parties that may suffer an injury, either financial or physical. All businesses, including not-for-profit and governmental organizations, face the possibility of liability losses arising from their premises, operations, products, and advertising. Liability insurances such as product liability, public liability, professional indemnity, employer’s liability, etc are designed to serve as the primary layer of protection against these loss exposures.
This is the main reason why industries and organisations should be more aware of their liability exposures so they can limit the cost they could pay by taking the appropriate insurance cover.
The writer is a staff of the National Insurance Commission, a Chartered Insurance Practitioner, and an Associate of the Chartered Insurance Institute of United Kingdom and also Ghana (ACII-UK, ACIIG), and holds MPhil in Enterprise Risk Management and Business Consulting from Kwame Nkrumah University of Science and Technology. Attained Bachelor’s degree from University of Ghana, Legon and have Applied Insurance studies, Diploma and Advanced Diploma (AAIS & AIS) from Ghana Insurance College / Malta Insurance Training Institute.
Justice Peprah AGYEI
Co-writer: Araba Hackman Akanji, Head of Business Development Unit at Ghana Communication Technology University, Accra. She has MBA in Finance from GIMPA and BSc. Chemistry from UCC.
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