Employer’s liability insurance covers you if a compensation claim is made against you by one of your employees. This type of insurance is required by law if you employ anyone.
Employer’s liability insurance is a “long tail” type of insurance. This means that claims can arise long after the insurance has expired, although those claims will still be dealt with, even if the policy is no longer in force.
Compensation claims can be made against you by your employees if something you have done, or failed to do, results in them being injured or killed, or means that they suffer from an industrial disease.
In addition to the compensation award for the injury or disease, the insurance also pays the claimant’s associated expenses. They may need to have used taxis to attend hospital expenses, for instance, and the insurance would cover those taxi fares. It also covers any wages that the claimant lost as a result of the injury or disease.
Your employer’s liability insurer will also defend any claims on your behalf. Having a legally trained team that specialises in compensation claims working for you means that you don’t have the worry of having to deal with solicitors. Your legal costs and the claimant’s legal costs are covered.
Employer’s liability insurance is a legal requirement if you employ anyone, and if you don’t have employer’s liability insurance when required to do so, there are heavy penalties.
You’re required to display a certificate of employer’s liability insurance at your place of work. Photocopies of the certificate are acceptable if you need to display more than one certificate because you trade from a number of different premises.
By law, your employer’s liability insurance must have an indemnity limit of at least £5,000,000, although most employer’s liability insurance policies have an indemnity limit of £10,000,000 as standard. The indemnity limit is the maximum amount that the insurer will pay in the event of a claim.
What is an employee?
An employee is a person who is working for you, even if you’re only employing that person on a temporary or casual basis. They don’t have to be paid via a payroll scheme to be classed as employees.
Bona fide subcontractors that you engage to provide a specific service are not classed as employees. However, subcontractors who are simply providing labour are classed as employees from an employer’s liability insurance point of view, even if they claim that they are self-employed for tax purposes.
There are a number of tests that can be used to determine whether someone is or isn’t an employee, but the main one is whether the person is under a contract of service or a contract for services. If they are under a contract of service, they are an employee. If they are under a contract for services they are not.
Long tail insurance
Employer’s liability insurance is different to many other types of insurance because claims can be made against you years after the incident leading to the claim took place.
Compensation claims relating to injuries can normally be made up to three years after the injury occurred and in some cases, that timescale can be extended. Compensation claims for industrial diseases can sometimes be made decades after the exposure leading to the disease occurred.
The employer’s liability insurer who covered you when the incident took place or when the exposure occurred will deal with the compensation claim, even if that insurance policy is no longer in force.
Because claims can arise years later, you’re legally required to keep your insurance documentation for 40 years, so that in the event of a claim, it’s possible to trace the insurer who covered you at the relevant time.