Liability Insurance: know the basics!

Edwina Kabengele is a Senior Associate at Lander & Rogers

For those working in the arts field the two types of insurance policies, which are most commonly required, are public liability insurance and professional indemnity insurance. The easiest way to remember the difference between indemnity and public liability insurance is that, very broadly speaking, public liability insurance provides cover for accidents involving other people that you might be blamed for, whereas professional indemnity insurance provides cover for loss that somebody may have sustained because of advice you gave. You should talk to your broker or insurance company about the activities in which you are involved, to make sure they understand the type of cover you require.

Even once a policy is in place, however, sometimes it will be found to be inapplicable, and the insured individual or company (i.e. you!) will be left to bear the loss. This often occurs because of either:

1. a failure to adequately consider what sort of cover was needed, and what effect some of the exclusions and other limitations in the policy would have. For example:
   • not obtaining insurance for activities overseas, and in particular for activities in the United States;
   • not including all relevant companies on the policy. This is particularly common where there are a number of family or related companies all trading under the same or similar names; or
2. a failure by the insured and its advisors to consider what effect their subsequent conduct would have upon policy coverage.

Many people buy insurance based on a general description, and remain ignorant of many of the limitations of cover, exclusions and obligations imposed on them. This problem can be compounded by the manner in which policies can be constructed, which has been described as a "jumble of ill-assorted documents expressed in that distinctive style which insurance companies have made their own": Mason J at p 308 in Guardian Assurance Co Ltd v Underwood Pty Ltd (1974) 48 ALJR 304.

However there are some simple steps that can be taken by you to help ensure that you obtain proper cover and that you are not disqualifying yourself from cover because of your subsequent conduct.

Step number one – before you look at the insurance policy, look at your other agreements

Your position could be compromised if you breach agreements you have made with other parties to include them in your insurance. For example, many leases have a clause which says that you must take out insurance in the landlord's name as well as your own. It is very common for these clauses to be totally ignored, buried, as they often are deep within leases or contracts, until someone makes a claim on the party, which was supposed to be included on the insurance policy. Then things can get really messy.

For example, a patron trips and falls on the front step of your gallery. The patron sues both the owner of the premises (for constructing an unsafe step) and you, the lessee, (for having inadequate lighting). The owner of the premises points to the clause in the lease, which requires insurance to be taken out by you in its name as well as in your name. Unfortunately, you forgot to do that. So you are now in breach of the lease. You may think, "No problem, I'm sure the owners have got their own insurance, so they can just claim under that."

Unfortunately, the courts have taken a different view. Court decisions, such as that of the Supreme Court of Western Australia in 1995 in the case of Hacai Pty Ltd v Rigil Pty Ltd & Ors (unreported), have held that because the owners cannot make a claim under your policy, they have suffered loss or damage which can be set off against any claim for contribution you may have against them for causing the accident. The court in the Hacai case held that the fact that they might otherwise defray the expense of meeting the claim (by claiming under their own policy) was irrelevant.

In other words, let us say that a court found that the owners of the premises in our example were 50% liable for the patron tripping, and you were 50% liable. The owners would then argue that the measure of their loss and damage as a result of your breach of the lease was 50% of the damages that the owners had been ordered to pay to the patron. In Hacai the court agreed that this was an appropriate measure. Accordingly, in our example the owner's share of the damages would have to be covered by you. You would thus be paying 100% of the damages, instead of 50%.

Moreover, many insurance policies contain a separate exclusion for liabilities that are based on other contracts, or otherwise do not cover them. This means that if you try to claim the extra 50% of the damages that you now have to pay from your own insurance company, your insurance company can refuse to cover you for that.

So you can see how important it is read your other contracts and leases for any clauses that mention insurance.

Step number two – consider the insuring clause and exclusion clauses

A fairly typical insuring clause could read as follows:

"Underwriters agree, subject to the terms, conditions, limitations and exclusions contained herein, to indemnify the Assured against Loss arising from any Claim by reason of Personal Injury or Property Damage caused by an Occurrence in connection with the Business."

The insuring clause states the cover that the policy provides.

The purpose of exclusion clauses, on the other hand, is to remove a loss from the ambit of the cover, as expressed in the insuring clause. Exclusion clauses may cover a wide range of different losses, depending on the nature of the cover. Typical exclusion clauses in public liability policies exclude certain losses, such as those arising out of the use of motor vehicles, acts of war, claims for which workers' compensation insurance is applicable, and defective products.

If your activities venture into areas that may fall within the exclusions, then you should talk to your broker or insurance company about whether extra cover is needed.

Step number three – understand 'subrogation'

Subrogation is the right of an insurance company, once it has indemnified the insured, to then place itself in the position of the insured (i.e. you) and recover some of the money it has paid out. This right flows from the basic principle that you are entitled to indemnity against your loss, but no more. If the insurance company was not entitled to subrogation, for example, then you could make a claim under the policy, receive full payment from the insurance company for your loss, and then pursue other parties who contributed to the loss, receive compensation from them also, and thereby obtain back more than you actually lost in the first place! The right of subrogation permits the insurance company, rather than you, to go after any other parties, which may have contributed, to the loss.

You can get into trouble, however, if you try to negotiate a settlement or otherwise try to "make the claim go away" without involving the insurance company. This can cause problems because you are under a general duty at law to do nothing which will prejudice the insurer's right of subrogation: SGIO (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228. It is usual for the policy to include a clause to the effect that any settlement, payment, compromise or admission made without the insurance company's consent will deprive you of coverage.

Conclusion

For further information on insurance, including review of your policy and referral to arts friendly insurers, please contact Arts Law.