DO’s (What You Should Do)
1. Clearly Identify Your Liability Exposure
Assess the nature of your operations or profession:
- Public interaction risks
- Professional advisory risks
- Employer–employee liabilities
- Product or environmental exposure
The policy must align with your actual risk profile, not generic assumptions.
2. Choose the Right Type of Liability Policy
Common liability covers include:
- Public Liability
- Professional Indemnity
- Employers’ Liability
- Product Liability
- Directors’ & Officers’ Liability
Selecting the correct policy type is more important than opting for a higher sum insured.
3. Assess the Sum Insured Adequately
Liability claims can escalate due to:
- Court awards
- Legal defence costs
- Compensation inflation
Choose a sum insured based on worst-case exposure, contractual obligations, and industry benchmarks.
4. Understand the “Claims-Made” vs “Occurrence” Basis
- Claims-made policies respond only if the claim is reported during the policy period.
- Occurrence policies respond based on when the incident occurred.
This distinction is critical, especially for professional and D&O liability policies.
5. Check Retroactive Date and Extended Reporting Period
For claims-made policies:
- Ensure the retroactive date covers past work.
- Consider extended reporting period (tail cover) upon policy exit or closure.
6. Review Coverage of Legal Defence Costs
Confirm whether:
- Defence costs are included within the sum insured, or
- Defence costs are payable over and above the limit
- This can significantly impact claim adequacy.
7. Disclose All Material Information
Full disclosure of:
- Nature of business
- Past claims or incidents
- Turnover, contracts, and jurisdictions
Non-disclosure can lead to claim repudiation.
DON’Ts (What You Should Avoid)
1. Don’t Buy Liability Insurance Only to Meet Contractual Compliance
Many policies are purchased merely to satisfy tender or contract requirements, without evaluating actual risk exposure. This often results in inadequate or mismatched coverage.
2. Don’t Ignore Policy Exclusions
Common exclusions include:
- Contractual liabilities
- Intentional acts
- Fines and penalties
- Cyber or pollution risks (unless specifically covered)
Unnoticed exclusions are a major cause of claim disputes.
3. Don’t Underestimate Long-Tail Risks
Liability claims may arise years after the incident. Avoid choosing short-term or one-off policies without considering continuity of coverage.
4. Don’t Assume All Liabilities Are Automatically Covered
Different liabilities require specific extensions or separate policies. For example:
- Cyber liability is not covered under standard public liability.
- Employee injuries may require separate employer’s liability or workers’ compensation cover.
5. Don’t Delay Claim Notification
Late reporting of incidents or circumstances that may give rise to a claim can invalidate coverage under claims-made policies.
6. Don’t Choose the Cheapest Policy Blindly
Lower premiums often mean:
- Narrower coverage
- Higher deductibles
- Restrictive exclusions
Focus on coverage quality, not just price.
7. Don’t Overlook Jurisdiction and Territorial Limits
Ensure the policy covers:
- Overseas operations (if applicable)
- Applicable legal jurisdictions
- Cross-border claims can be excluded if not explicitly covered.
Conclusion
Liability insurance is not a standard, one-size-fits-all product. It requires a careful understanding of legal exposure, policy structure, reporting obligations, and exclusions. By following the right Do’s—such as selecting appropriate coverage, ensuring continuity, and understanding claims triggers—and avoiding common Don’ts like under-insurance or poor disclosure, policyholders can secure meaningful protection against potentially catastrophic financial liabilities.
