Saving trouble

The public liability policy is an important cover, especially for professionals, to protect against eventualities that can result in damage to third parties.

Print Edition: April 2, 2009

Suppose your child breaks the neighbour’s window while playing cricket or a potted plant falls from your first-floor balcony and damages his new bike. Such accidents not only cause much heartburn but also result in loss of property that can put you back financially.

To safeguard against such contingencies, you can buy an insurance plan called the public liability policy. It protects you against mishaps resulting in damage to the property of a third party, or even injury and death. The policy is bundled with the householder’s insurance (On the House, 5 March).

It is especially useful for professionals like doctors, lawyers and architects who can cover themselves against work-related liabilities. So, if a client suffers bodily injury due to your work, this policy can help cover the financial loss, compensation and legal fee, leaving you only with the statutory fines and penalties. For instance, a doctor can be sued for performing an operation that is considered an error by the patient.

Or, a lawyer can be taken to court if his client feels that he lost a case because of his professional incompetence. There is, however, a rider: these policies do not cover willful acts of negligence. They also exclude criminal intent by a professional.

The above policies offer a double-layered protection. A typical liability policy is split into two levels—any one accident (AOA) and any one year (AOY). In the AOA, there is a limit to the amount you can claim from the insurer for each case filed against you. So, in any one year, all mishaps can be claimed for, provided the total amount does not exceed the sum insured. If your AOA limit is capped at Rs 10 lakh and the AOY limit is Rs 40 lakh, your insurer will pay a maximum of Rs 10 lakh for any one accident, subject to a limit of Rs 40 lakh in any one year.

The most important liability cover that you need to take, and one mandated by law, is for your vehicle. As per the Motor Vehicles Act, any vehicle that plies on the road needs to have a third-party cover or a liability-only cover. This policy provides cover if you damage the property, or cause an accident or loss of life of a third party. Again, it does not cover a deliberate act or a criminal intent.

Usually, there is no cap on the sum insured for a bodily injury or loss of life, and the entire amount of compensation is borne by the insurers, excluding any deductibles. While awarding damages, the courts take into consideration the earning capacity and age of the injured/deceased person. But for a third-party property damage, the maximum liability is Rs 7.5 lakh and the mandatory minimum liability is Rs 6,000. The motor third-party liability also covers the compensation, legal fee and interest on the compensation awarded.

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