Introduction to liability insurance in the UAE

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Insuring assets like motor, property and home are common and known to even the general public but apart from insuring assets, business and individuals can also insure liabilities and such insurance can save you from big troubles at times.

Businesses owe a duty of care to customers, employees, their physical neighbors and at times suppliers. What is duty of care? It is an obligation by law where one entity is liable to provide proper care to another entity such as not to cause any sort of harm/damage to another. This duty of care can be insured and this type of insurance refers to what is commonly known to us as liability insurance.

Duty of care may be breached by negligence or malpractice where the individual or business can be sued by third parties who can claim actual costs or pays. While damage due to negligence or malpractice is usually covered under liability insurance, intentional damage or damage due to breaching of contract (contractual liability) is often not covered.

The two types of losses that can be made under liability damage are pure financial losses and physical losses. Pure financial loss is one which is not tangible; the damage cannot be seen by the human eye but includes professional liability where a business or individual like an employee causes harm to a third party like a client. For example, they make give wrong professional advice and they can be sued for being non professional which is where liability insurance comes into play.

Other examples of pure financial liabilities include directors and officers liability where the COOs, CEOs or CFOs of a company are liable to the shareholders for any strategic decisions they make. Imagine you are a shareholder and the directors make decisions which damage your company’s reputation. If the decisions go against the law, the directors can be sued. In such cases, they can be held liable to pay for the loss they made. However, if insured by the directors and officers’ liability insurance, the directors and officers can protect themselves. Intentional acts which do not abide by the law are exempted from coverage. The claims can be made by shareholders if the directors and officers act against their interests, by customers if the product does not meet satisfactory standards (common in US in food beverage industry), by competing firms for trade malpractice and by some other entities.

Pure financial liability also includes errors and omissions made by a business and the claim is usually made by the clients of the business on grounds of negligent acts by businesses or individuals. Such individuals or businesses can be protected from paying the entire loss by insuring themselves with the Errors and Omissions insurance. For example, if an employee, even a clerk, makes a mistake with figures and records 10,000 instead of 100,000 in a transaction then this additional zero can lead to loss for another party who can claim the loss he may suffer. So E&O insurance can protect companies from damage by providing compensation on behalf of the company.

In a situation where the employer suffers a financial loss due to dishonesty on the employee’s part, the fidelity guarantee insurance can be used to cover the loss. Frauds or making personal use of the company money are typical cases of wrongful acts by employees and they are usually covered as per the insurance contract. Likewise, if an employee suffers damage due to an employer not providing minimum wage or mandatory health benefits, then workers’ compensation can support the employees. However, fraudulent cases like faking an injury or off the job injuries are excluded.

Another major category, as mentioned previously, which falls under liability insurance is physical liability (casualty). This is rather easier to understand and witness since it includes insurance of damages that can be seen by the human eye. Physical liability insurance covers body injury to customers, employees or third parties as well as damage caused to the environment through pollution or even death of an individual. Liability insurance can cover such losses when they are accidental rather than intentional.

Liability related claims take a longer time since they are often referred to court and the defense costs (costs of defending a case) are usually high. If the cases go to trial, they can even last for many years. Therefore, it is advisable for the businesses opting for liability insurance to find an insurance policy which covers defense costs.

Come to to enquire for a simple ‘off the shelf’ public liability insurance (which is mandatory in most freezones) or a tailor-made liability policy that will cover all your ‘duty of care’ risks as a business.

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