This article was last updated by the author in October 2016.
A brief introduction to employers' liability insurance.
All businesses have a legal duty to protect the safety of their
employees at work. Those who fail to do so will be legally obliged
to pay compensation if an employee is injured, or becomes ill, as a
result of their negligence. This could happen, for example, if an
employee injures their hand whilst using a piece of unguarded
machinery. Businesses are responsible not only for their own acts
of negligence, but also for those of their employees. This is
termed vicarious liability.
Compensation could include financial recompense for any expenses
incurred, loss of earnings, possible loss of future earnings, pain
and suffering, and perhaps other items. In addition, even if the
business owner was not the cause of alleged injury or illness, the
costs and expenses incurred in taking legal advice and defending an
action in court can be substantial.
Employers' liability insurance is there to make sure the money
will be available to deal with such claims. It is one of the few
types of insurance which is compulsory by law in the UK.
Compulsory insurance requirements were first are laid down in
the Employers' Liability (Compulsory Insurance) Act 1969 and have
since been up dated by the Employers' Liability (Compulsory
Insurance) Regulations 1998. All employers, with certain limited
exceptions, must be insured against liability for bodily injury or
disease sustained by their employees arising out of and in the
course of their employment in the business. This must be under an
approved policy with an authorised insurer. The cover provided must
be for a minimum of £5 million in respect of all claims arising out
of any one occurrence.
In addition, employers must display, at each place of business,
a certificate of insurance to demonstrate that the employer has the
required insurance. The Employers' Liability (Compulsory Insurance)
(Amendment) Regulations 2008 allow for a certificate to be made
available electronically, perhaps through an intranet site,
provided all employees have access to it.
Only a very few businesses are not legally required to have
Employers' Liability Insurance; for example, those who have no
employees; family business where all employees are closely related
to the business owner; and most public organisations including
government departments, local authorities, police forces and
An employers' liability policy provides cover for any sum which
the employer may be legally liable to pay to any employees in
respect of injury, disease, illness or death caused during
employment in the business of the insured. Key words, such as
'employee' and 'business', are defined in the policy.
The term employee is widely defined as 'any person who is under
a contract of service or apprenticeship' with the insured. It can
therefore include not only direct employees but also self-employed
persons, hired persons and students on work experience.
The injury or illness must have been caused in connection with
the trade or business stated in the policy wording. However, it is
usual to extend cover to include any ancillary activities of the
insured; for example, first-aid facilities, canteens, private fire
brigade and ambulance services and any private work carried out for
any director, partner or employee of the company.
Cover also includes:
- the claimant's costs and expenses associated with a claim
- any legal costs incurred by the insured in defending a claim
with the insurer's consent. This includes representation at any
hearing for breach of statutory duty, such as Health and Safety
- any director, partner or employee of the insured for any action
brought against them, in their personal capacity, for which the
insured would be entitled to indemnity under the policy.
There is no cover for liability for loss of, or damage to, an
employee's property. This would instead be dealt with under the
employer's public liability policy.
Cover is subject to a limit of indemnity; usually £10 million.
Employers' liability cover for acts of terrorism is limited to £5m,
this being the minimum amount of cover which is compulsory.
Cover only applies where bodily injury is sustained within the
territorial limits stated in the policy, which are usually:
- Great Britain, Northern Ireland, the Isle of Man or the Channel
- anywhere in the world in connection with commercial visits by
employees, provided that such employees are normally resident in
the countries noted above.
The injury or illness must have been caused during the period of
insurance. Some diseases, such as lung diseases and deafness, may
not become apparent until some years after the employees was
exposed to the unsafe conditions. Any claim must be made against
the insurer that was 'on risk' at the time the injury or illness
was caused. It is immaterial that the policy may have subsequently
expired. For gradually developing diseases, such as asbestosis, the
insurers that covered the employers' liability risk over the
development period must share the cost of any claim, according to
the length of time that they were on cover.
As an Employers' Liability policy is designed to meet compulsory
insurance requirements, cover is typically written on an inclusive
basis, rather than offering optional extensions.
As Employers' Liability insurance is compulsory, policy
exclusions are not permitted.
However, cover may be limited by an insurer as part of the
underwriting process by applying clauses which:
- restrict the definition of the 'business';
- exclude certain kinds of work;
- exclude certain machines and/or processes.
This allows insurers to exclude, for example, off shore work and
In addition, the policy wording will exclude liability for
injury to employees whilst travelling in (or getting into or out
of) a vehicle, whilst being used on a road. This is because the
Motor Vehicles (Compulsory Insurance) Regulations 1992 require
cover for such risks to be provided under the employer's motor
Most Employers' Liability policies are rated on wages, split
between different types of jobs. A higher rate would apply to
manual jobs, such as builders, than to clerical staff such as
The premium is usually based on estimated figures at the
beginning of the period of insurance and is then adjusted on actual
figures at the end of the period.
There are very few separate Employers' Liability policies
issued. It is more common to issue combined liability policies
which include employers', public and products liabilities within
one policy document.
Most composite insurers, as well as a number of specialist
insurers and Lloyd's syndicates, offer employers', public and
products liability cover. Cover is often arranged through an
insurance intermediary, although small businesses can purchase
cover by telephone or on line as part of a commercial package