How personal liability cover protects you

By Martin Hesse Time of article published Sep 27, 2014

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This is part four of an eight-part series about short-term insurance by Santam in association with Personal Finance.

Personal liability cover is like having a fire extinguisher in your car. It’s the sort of thing you will probably never need, but if you do, you’ll be very thankful you have it.

Essentially, it is cover against a party suing you, in your personal capacity, for financial loss, physical injury or death. And it could be for millions of rands …

The most common form of personal liability insurance is that for which you don’t have to pay separately – it is embedded in the cover for your household contents (householder’s insurance) and/or the structure of your home (homeowner’s insurance).

Bonginkosi Zondani, the technical underwriter at Santam personal lines insurance, says that personal liability insurance covers any form of liability to the policyholder. As such, there is a significant overlap between the liability cover you get with a householder’s policy and a homeowner’s policy. For example, if your dog ran into the street and attacked a child passer-by, and the parents of the child sued you for their ensuing medical expenses, you would be covered by either policy.

The personal liability insurance in a homeowner’s policy will also cover your liability related to the structure of your home and its permanent fittings – for example, if a wall collapsed onto someone’s car.

But the cover is wider than what happens in and around your home. Zondani says that, although the insurer looks at the interests of the client at the risk address and his or her immediate family members who live there, cover is not restricted to events that occur on the premises – in fact, you are covered anywhere in South Africa and abroad.

He says a typical settlement may include compensation for:

* Medical costs, present and future;

* Restoring or replacing damaged property;

* Pain and suffering of the injured party;

* Loss of income; and/or

* Legal costs and expenses.

Zondani says you should also be aware that personal liability benefits extend beyond what you would expect. For example, you would be covered if you were a member of a neighbourhood watch and were sued by someone for wrongful arrest. And if someone stole your credit card and ran up large debts on your bank account, your personal liability insurance would cover that also, he says.

Your standard cover will also insure you for legal representation in a criminal case, although Zondani says this relates to legal costs incurred to defend you, not for damages, bail or a sanction such as a fine.

So how much personal liability cover do you need? Marius Neethling, the head of personal lines insurance at Santam, says the amount that comes standard with these policies is reviewed regularly, to keep pace with the rising compensation demanded in law suits, and in line with what competitors are doing. Standard cover at present on a Santam policy is up to R5 million.

Neethling says the limits on standard cover – R2 million or even R5 million, depending on your insurer – may seem like a lot, but, in fact, for this type of cover these amounts are quite small.

Most insurers offer top-up cover for a low additional premium, which may well be worth it, because if someone does claim against you, it could ruin you financially. For example, Neethling says, a visitor from London could sue you in his own currency – for the equivalent of a million pounds or more.

Top-up cover, such as Santam’s extended personal liability cover, extends the limit to R10 million or even to R20 million. Because the chances of your claiming are very low, this extended cover is highly affordable, Neethling says.

Claims procedure

It is important that you notify your insurer as soon as possible after an event in which you were involved if you think it may give rise to a claim. You must also immediately report to the police any event in which any criminal act is involved.

You shouldn’t wait for a summons or lawyer’s letter from the injured party if you reasonably expect that you will be sued. The sooner you let your insurer know, the better it will be able to assess its exposure and the more advantageous it will be for your case.

And insurers require that you do not, without their written consent, admit liability, or offer or promise to pay for anything relating to the event. “Our attorneys or advocates may determine that you are not to blame and, besides, this is important to mitigate our risk as an insurer,” Zondani says.

You need to send all the necessary documentation relating to the case to your insurer, which will pass the case over to its legal branch, Zondani says.

In your policy contract, the insurer will have a clause such as the following: “We may take over the recovery, defence or settlement of a claim and conduct it in your name.” In other words, the insurer takes on your liability and in so doing, indemnifies you, the client.

From this point on, the case is out of your hands, although you will be expected to assist where possible and testify in court if necessary.

Depending on the degree to which the insurer deems there was wrongdoing on your part, an out-of-court settlement may be reached with the injured party.

If the case against you is not certain and the insurer decides not to settle, it will be up to the injured party to proceed to court.

All subsequent damages and legal fees will be covered by the insurer, should the court hold you liable for these.

PROVING LIABILITY

For the injured party (plaintiff) successfully to bring a civil case against you, he or she must prove that you were to blame for the loss or injury for which compensation is being sought.

On its website, Camargue, a liability specialist underwriter based in Johannesburg, explains that the plaintiff needs to prove four key points:

1. That the action was wrong.

2. That you were at fault. Fault can arise through either intent or negligence. If the plaintiff argues for negligence, he or she must show that you should have foreseen the possibility of harm arising from the action (or lack thereof) and you should have taken steps to prevent the harm, which you did not.

3. Causation. The connection between the action and the damage caused must not be too remote.

4. Harm. It must be established that the plaintiff suffered harm, for which he or she could be reasonably compensated.

MOTOR INSURANCE AND LIABILITY COVER

Your have personal liability cover linked to your motor vehicle insurance, which covers any liability to you, the owner, arising from an accident in which there is damage to property, or death or injury to people or animals, Bonginkosi Zondani, the technical underwriter at Santam personal lines insurance, says.

Although the Road Accident Fund (RAF) is the route people must take if they have been injured in a road accident and want to claim for third-party compensation, the fund may have certain limitations, he says.

The insurer may settle on your behalf in the following instances:

* The eventuality may arise where the RAF has no funds to meet its obligation;

* A third party may have a valid claim for emotional shock (for example, a person witnessed a vehicle accident you were party to in which another person died or was badly injured); and

* Cover for vehicles in general is not restricted to South Africa; it extends to other countries, where the RAF has no application.

CASE STUDY: TORN TENDON

A policyholder had a friend from Israel over for dinner. After dinner, he and his friend were taking a walk in the garden when the friend fell into a concealed hole in the ground next to the swimming pool. The lighting in the garden was very limited, so the friend was unable to see the hole, and the insured failed to warn him about the hole.

The friend was in the country to participate in the Pick n Pay Cape Argus Cycle Tour. The injury caused a tear to his Achilles tendon and he needed an operation. The claim against the insured was for the following:

* Medical costs incurred;

* Loss of income and earning capacity; and

* All monies spent on the trip to South Africa, because he could no longer participate in the cycle tour, which was the sole reason for his trip.

Santam settled the claim for R60 000 – half the amount that was originally claimed – after some negotiation with the third party’s attorney.

CASE STUDY: AMPUTATION

Santam’s specialist liability unit dealt with a claim by a woman who was bitten by a policyholder’s dog. The woman had to have her right arm amputated as a result of the bite. She was right-handed and an income-earner.

The claim was quantified at between R9 million and R10 million. However, the limit of cover on the insured’s personal legal liability policy was R5 million, with no extended cover.

After deducting the already incurred legal expenses, a full and final settlement of R4.8 million was made to the injured party.

CLAIMS BY THE NUMBERS

Santam’s specialist liability department says that, with regard to its personal liability claims:

* About 10 percent of the claims are repudiated;

* About four percent proceed to judgment through litigation;

* About 80 percent are settled out of court (before litigation or mid-way through litigation); and

* The remaining six percent represent instances in which Santam has denied its client’s liability and the other party does not pursue the matter further.

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