AMITY LAW SCHOOL, LUCKNOW.

The Assignment topic is

“LIABILITY AND GUARANTEE INSURANCE”

Of subject of

LAWS OF INSURANCE

The assignment is submitted by Akriti Singh, an LL.M (Business

Law) student, submitted to Dr Taru Mishra (Faculty of Law).

Enrolment no: A8101821203

Section A
 A C K N O W LE D G E M E N T

I am feeling highly pleased to work on the assignment under my faculty of Insurance

law, Dr Taru Mishra. I am very grateful to her for her moral guidance. I want to
enlighten my readers regarding this topic, and I hope I have tried my best to pave
the way for bringing more luminosity to this topic.

I also want to thank all of my friends, without whose cooperation this project was
not possible. Apart from all these, I want to give special thanks to the librarian of
my university, who made every relevant material regarding my topic available to me
during my busy research work and assisted me. And at last, I am very much obliged
to the God who provided me with the potential for rigorous research work.

Much Obelized,
Akriti Singh
 LIABILITY AND GUARANTEE INSURANCE

WHAT IS LIABILITY INSURANCE?

Liability insurance refers to an insurance product that protects an insured party against claims
resulting from injuries and damage to other people or property. Liability insurance policies cover
any legal costs and payouts an insured party is responsible for if they are found legally liable.
Intentional damage and contractual liabilities are generally not covered in liability insurance
policies. Unlike other types of insurance, liability insurance policies pay third parties—not
policyholders.

HOW LIABILITY INSURANCE WORKS

Liability insurance is critical for those liable and at fault for injuries sustained by other people or
if the insured party damages someone else's property. As such, liability insurance is also
called third-party insurance. Liability insurance does not cover intentional or criminal acts even if
the insured party is found legally responsible. Policies are taken out by anyone who owns a
business, drives a car, practices medicine or law—basically anyone who can be sued for damages
and injuries. Policies protect the insured and third parties who may be injured due to the
policyholder's unintentional negligence.1

For instance, most states require that vehicle owners have liability insurance under their
automotive insurance policies to cover injury to other people and property in accidents. A product
manufacturer may purchase product liability insurance to cover them if a product is faulty and
causes damage to the purchasers or another third party. Business owners may purchase liability
insurance if an employee is injured. The decisions doctors and surgeons make while on the job
also require liability insurance policies.

https://www.investopedia.com/terms/l/liability_insurance.asp#:~:text=The%20term%20liability%20insurance%20
refers,they%20are%20found%20legally%20liable.
Personal liability insurance policies are purchased primarily by high-net-worth
individuals (HNWIs) or those with sizeable assets. Still, this type of coverage is recommended to
anyone with a net worth that exceeds the combined coverage limits of other personal insurance
policies, such as home and auto coverage. The cost of an additional insurance policy doesn't
appeal to everyone, although most carriers offer reduced rates for bundled coverage packages.
Personal liability insurance is considered a secondary policy and may require policyholders to
carry certain limits on their home and auto policies, resulting in additional expenses.

SPECIAL CONSIDERATIONS

Although commercial general liability insurance protects against most legal hassles, it doesn't
protect directors and officers from being sued, and it doesn't cover the insured against errors and
omissions. Companies require particular policies for these cases, including:

Errors and Omissions Liability Insurance (E&O): An errors and omissions liability
insurance policy covers lawsuits arising from negligent professional services or failing to perform
professional duties. Lawyers, accountants, architects, engineers, or any business providing a
courtesy to a client for a fee should purchase this form of insurance. An E&O policy does not cover
criminal prosecution, fraudulent or dishonest acts, or claims against bodily injury. The insured,
however, is substituted for attorney fees, court costs, and any settlements up to the amount
specified by the insurance contract.

Directors and Officers (d&o) Insurance: This type of policy protects directors and officers
of large companies against legal judgments and costs arising from unlawful acts, erroneous
investment decisions, failure to maintain the property, releasing confidential information, hiring
and firing decisions, conflicts of interest, gross negligence, and other errors. Most D&O policies
exclude coverage for fraud or other criminal acts. Premiums depend on the company, location,
industry type, and loss experience.
TYPES OF LIABILITY INSURANCE

Business owners are exposed to a range of liabilities, any of which can subject their assets to
substantial claims. All business owners need to have an asset protection plan in place that's built
around available liability insurance coverage.

Here are the main types of liability insurance:

• Employer’s liability and workers' compensation are mandatory coverage for employers,
which protects the business against liabilities arising from injuries or the death of an
employee.
• Product liability insurance is for businesses that manufacture products for sale on the
general market. Product liability insurance protects against lawsuits arising from injury or
death caused by their products.
• Indemnity insurance protects a business against negligence claims due to financial harm
resulting from mistakes or failure to perform.
• Director and officer liability coverage covers a company's board of directors or officers
against liability if the company should be sued. Some companies provide additional
protection to their executive team even though corporations generally offer personal
protection to their employees.
• Umbrella liability policies are personal liability policies designed to protect against
catastrophic losses. Coverage generally kicks in when the liability limits of other insurance
are reached.
• Commercial liability insurance is a standard commercial general liability policy known as
comprehensive general liability insurance. It provides insurance coverage for lawsuits
arising from injury to employees and the public, property damage caused by an employee,
and injuries suffered by the negligent action of employees. The policy may also cover
infringement on intellectual property, slander, libel, contractual liability, tenant liability,
and employment practices liability.
• Comprehensive general liability policies are tailor-made for small or large
businesses, partnership or joint venture businesses, a corporation or association, an
organisation, or even a newly acquired business. Insurance coverage includes bodily injury,
property damage, personal and advertising injury, medical payments, and premises and
 operations liability. Insurers provide coverage for compensatory and general damages for
lawsuits but not punitive damages.

MARKET
Commercial liability is an important segment of the insurance industry. With a premium income
of USD 160 billion in 2013, it accounted for 10% of global non-life premiums of USD 1 550
billion, or 23% of the global commercial lines premiums. Liability insurance is far more prevalent
in the advanced than emerging markets. The developed markets accounted for 93% of global
liability premiums in 2013, while their share of global non-life premiums was 79%.2

The US is the largest market, with 51% of the global liability premiums written in 2013. This is
due to the size of the US economy and the high penetration of liability insurance (0.5% of GDP).
In 2013, US businesses spent USD 84 billion on commercial liability covers. USD 50 billion was
on general liability, including USD 12 billion for Errors and Omissions (E&O) and USD 5.4 billion
for Directors and Officers (D&O). US businesses spent another USD 13 billion on the liability
portion of commercial multi-peril policies, USD 9.5 billion for medical malpractice and USD 3
billion for product liability covers.

The UK is the world’s second-largest market for liability insurance, with USD 9.9 billion in
liability premiums in 2013. The largest sub-line of business is public and product liability. This is
followed by professional indemnity and employers’ liability (cover for employment-related
accidents and illnesses). There has been a significant shift in the sub-segments of UK liability
insurance. In the last decade, the share of professional indemnity has increased from about 14% to
32%, highlighting the shift towards a more services-driven economy. Manufacturing, meanwhile,
comprises a lower share of liability claims as accidents related to injuries and property damages
have declined.

The largest liability insurance markets in continental Europe are Germany, France, Italy, and
Spain. Together they made up almost USD 22 billion of global liability premiums in 2013.

2
Liability claims trends: emerging risks and rebounding economic drivers, Swiss Re sigma, Sept 2014
"http://media.swissre.com/documents/sigma4_2014_en.pdf
Typically governed by civil law systems, these markets rely on local conditions and historical
experience to determine which liability policies and covers are available. Penetration ranges from
0.16% to 0.25%, which is low compared to the common law countries such as the US, the UK and
Australia.

Japan and Australia are the largest markets in the Asia Pacific region, with commercial liability
premiums of USD 6.0 billion and USD 4.8 billion, respectively, in 2013. At 0.12% of GDP, Japan's
penetration of liability insurance is much lower than in other advanced economies. In Australia,
penetration is much higher at 0.32% of GDP. This is due to the country’s English law derived legal
framework, which has increased demand for employers’ liability insurance. Australia has
mandatory covers for aviation, maritime oil pollution and residential construction and, in certain
states, for medical practitioners, property brokers and stockbrokers. Liability insurance premiums
have grown at an average annual rate of 11% since 2000.

China is the ninth-largest commercial liability market globally, with premiums of USD 3.5 billion
in 2013 and annual solid average growth of 22% since 2000. However, penetration remains low at
0.04% of GDP. Growth has been driven by increasing risk awareness and regulatory changes.
WHAT IS PRODUCT GUARANTEE INSURANCE?

Guarantee insurance means the undertaking to perform an agreement or contract or to discharge a

trust, duty or obligation on default of the person liable for the performance or discharge or to pay
money on the bankruptcy or in place of the performance or release, or where there is loss or damage
through the default, but does not include credit insurance.

Product guarantee insurance covers the costs of dealing with a product that fails to meet the
function or specification for which it was manufactured or supplied.

It is similar to product recall insurance. However, product recall insurance will only come into
effect if the product you manufacture or supply has a fault that is of danger to health. Product
guarantee insurance will respond if there is a problem with the product, whether it is dangerous or
not.3

Product guarantee insurance is often purchased in conjunction with Product Liability insurance,
which covers claims for injury or damage caused by the product. Product guarantee insurance
extends the cover provided by product liability insurance. It will cover the manufacturer’s or
supplier’s costs to recover and replace the faulty items, even if they are not hazardous to health.

Product guarantee is similar to Efficacy insurance, which covers the failure of a product or service
to perform its function, but, as with Products Liability, Efficacy insurance requires injury or
damage to respond. The selection of Products Liability, Efficacy, Product Guarantee and Product
Recall can be determined by the nature of the product or service you provide and its use.

Other considerations can be contractual, as many supplier contracts insist upon some of these
insurances. A final review is a cost, as Product Guarantee and Product Recall policies generally
start at over £5,000 a year, usually prohibitive for smaller companies.

3
https://www.sutcliffeinsurance.co.uk/all-insurance-products/product-guarantee-insurance/
WHEN TO USE A GUARANTEE INSURANCE?

First, you should make sure in the text of the agreement that the beneficiary does not explicitly
require a bank guarantee. Ensuring that the guarantee insurance becomes collateral in the
negotiations is good.

Replacing a bank guarantee with insurance frees your bank limit for better purposes, such as your
company's growth investments.

GUARANTEE INSURANCE PRICE

Guarantee insurance can also be used to replace letters of credit. Insurance companies’ pricing is
competitive, and insurers do not require counter-guarantees.

It is advisable to use an experienced insurance broker when considering guarantee insurance. They
can assess the reasonableness of the price level about the need for price negotiations.

ISSUANCE OF GUARANTEE INSURANCE

A guarantee insurance policy generally works the same way as a bank guarantee. Guarantee
insurers grant their clients a limit from which individual contracts can be written quickly and
flexibly.4

The granting of guarantee insurance is based on an analysis of the company's financial position
and prospects. Insurance guarantee needs also have an impact on pricing.

The most typical guarantee insurances issued by insurance companies are

• laboureror and warranty guarantee insurances

• RS guarantee insurance (during construction, after construction)
• delivery guarantee insurance
• advance payment guarantee insurance

4
https://www.soderbergpartners.fi/en/business-insurance/guarantee-insurance/
 • payment guarantee insurance
• customs guarantee insurance
• various permit guarantee insurance (e.g. environmental / land use guarantees).

In addition, to guarantee insurance, we provide services related to, e.g. risk management and credit
insurance.
 BIBLIOGRAPHY

I have taken the help of the following websites for graphs(charts), a few of the basic ideas and
the essence of the topics, though I have tried to put up the content in my own words as far as
possible.

• https://en.wikipedia.org/wiki/Liability_insurance
• https://www.soderbergpartners.fi/en/business-insurance/guarantee-insurance/
• https://www.investopedia.com/
• https://www.sutcliffeinsurance.co.uk/all-insurance-products/product-guarantee-insurance/