The first part of this series, which has been extracted verbatim (with slight editing) from the SATSA Insurance Directive booklet, was published in January 2016 (read Part 1 here.)
Part 1 covered an introduction to insurance, an outline on the EC Directive and the basics of risk management, and the first of 5 important types of insurance, namely financial guarantees. In Part 2, we look at liability insurance. By Des Langkilde.
TYPES OF INSURANCE
Basically there are five kinds of insurance that really apply to the tourism industry:
- Financial Guarantee (Insurance Bond) – Refer Part 1
- Liability Insurance
- Vehicle / Property Insurance
- Travel Insurance / Medical Rescue
- Other Business Insurance (Buy & Sell, Key Person, Provident Fund)
2. Liability Insurance – what is it?
Liability insurance is a product that is bought by organisations, companies and individuals to cover the risk of a common law claim for damages by someone who is injured or suffers some form of quantifiable or financial loss through their activities whilst in the insured’s care.
An added risk is the responsibility of maintaining private roads where a client may have an accident due to poor maintenance or an unmarked hazard or danger. Even secondary provincial roads that are in a poor state can become an issue and where this is the case you should continually lobby the local authority to rectify such, so as to emphasise their liability in this regard.
In South Africa, the SA National Road Traffic Act 93 of 1996 defines a public road as; any road, street or thoroughfare or any other place (whether a thoroughfare or not) which is commonly used by the public or any section thereof or to which the public or any section thereof has a right of access, and includes;
(a) The verge of any such road, street or thoroughfare;
(b) Any bridge, ferry or drift traversed by any such road, street or thoroughfare; and
(c) Any other work or object forming part of or connected with or belonging to such road, street or thoroughfare.
|Legal opinion: By definition, a public road is not linked to the ownership of the road but to the common right of use to the road. A road may be considered private for purposes of road maintenance but if it used by the public, it is considered a public road in terms of the National Road Traffic Act, 1996. In terms of the law, very few roads are considered to be private as it would need to be proven that the road has access control and that no members of the public use the road at all.|
Liability insurance covers your legal liability arising from accidents or other incidents which may occur at meetings, events, guided tours, safaris, transportation or simply on your premises where you are deemed to have been negligent. Examples include food poisoning, slipping on the floor, having an eye injured by the branch of a bush whilst on a game drive, being trampled by an elephant or even a bungi cord that breaks.
Negligence is simply doing something without a reasonable amount of care, or failing to have done something that might reasonably have been done to prevent the incident from having occurred in the first place.
NB: Most liability insurance policies only cover actions brought against the insured entity, unless the policy specifically extends to include ‘all sub-contractors’. This is an important aspect, specifically from a Tour Operators’ perspective, as they often sub-contract the services of Tourist Guides, for instance. Unless the policy wording is specifically extended, the Tourist Guides would need to have their own liability cover, which should be checked by the Tour Operator, for the reason that any actions instigated as a result of the Guide’s negligence could result in the Tour Operator being found liable by virtue of contractual obligation. The same applies to Tour Brokers who sub-contract the services of Tour Operators.
|TIP: As liability insurance is negligence based (fault must be proven in a court of law), it is important to ensure that the policy does not cap (limit) legal defence costs.|
Why do you need it?
Some funding bodies, credibility associations such as SATSA and certain government regulations require that you have insurance cover in place before undertaking any tourism related activities. Without such cover, organisations are fully exposed to the risk of liability claims, which not only threatens their financial survival, their employees’ jobs and the claimant’s chances of being fully compensated but also impacts negatively on the general tourism industry and the destination country as a tourist destination. Here one must also consider that even if the action against the organisation is successfully defended in a court of law, the legal fees incurred over the lengthy process of defending the case can often exceed the amount of the initial demand. Again, most liability policies will cover the legal costs incurred in defending the case, but make sure that this cover is not limited to a level below the indemnity (sum insured) limit.
Liability policies come in several forms, two of these being: General Public Liability and Passenger Liability insurance. The reason that both covers are not offered in one policy is primarily due to the different risk profile or likelihood of occurrence to which insurance underwriters are exposed in each of the cover types.
A.I) GENERAL PUBLIC LIABILITY INSURANCE
General Public Liability insurance is designed specifically to protect you against any possible financial compensation claims by clients, guests or the general public where corporate or employee negligence could be construed to have been the cause of an incident. This covers a very broad variety of possible incidents ranging from loss or damage to a guest’s personal property to a tourist claiming ‘diminished value of holiday’ due to their expectation of having a sea-facing room (as shown in the tour brochure) and ending up with a view of a brick wall.
How much cover is needed?
As a general rule it is far better to be over insured than under insured but this is directly proportionate to the affordability of the required premium. With insurance being perceived as a grudge purchase and the notion that “it will never happen to me” the temptation is to go for the cheapest cover but this can prove to be a false economy.
So how much is ‘sufficient’? The required cover or indemnity limit could depend on the ‘net worth’ profile of your clients. For example, consider a 40-something, married South African business executive who earns ZAR500 000 a year, who is the sole breadwinner and has three dependents. He or she slips in the shower at your lodge and sustains a disabling injury to the spine and is unable to perform the same job as done before the incident. After a lengthy and costly legal case the court finds that you were negligent for not ensuring that the shower was fitted with non-slip tiles or mats. A possible award to the plaintiff could be in the region of ZAR10 million in this example, if one takes into account the costs of on-going medical care, loss of income and even alterations to the family home to make it wheelchair friendly.
Now consider the event of multiple claimants, or foreign guests whose income and future medical costs need to be calculated in their currency of origin. Quite obviously, the cover amount needed corresponds to the profile of guests that your establishment caters for.
Liability claims can be very high as they are rarely based on tangible factors, but on emotion and suffering, and therefore may be ridiculous and blown out of all proportion. However any such claim will be influenced by the following factors:
- Negligence has to be proven – was your company truly at fault? Are your floor tiles dangerous, do you have sufficient signage, was the ranger driving recklessly, was the guide qualified and taking reasonable care when he walked the group up to the elephant?
- Was the client made aware of any risk and did they sign an indemnity form? This will certainly relinquish some responsibility but not in the event of true negligence. Signage and information given either verbally or in writing to clients is imperative. This may often be in your marketing literature where the risks and shortcomings of a tour or experience must be clearly stated.
- How did you handle the situation after the event? Don’t ever openly admit negligence such as, “sorry it was my / our fault.” Handle the situation with compassion and understanding and where possible try and remedy the problem. Isolate the individual or people involved from your other guests and don’t let anyone else who is not directly involved or who is not able to offer proper medical assistance anywhere near the clients or the incident. It is often others who encourage, incite and worsen an already difficult situation.
- Make sure that everything is accurately recorded and that comprehensive statements are taken from all relevant people. Sometimes photographs might help.
- Ensure that your company is fully compliant with all the local laws that govern your specific industry and all the staff that work for you. Health regulations must be met, guides must be licensed and qualified, buildings must meet certain standards, etc.
- Inquire as to what other insurance the client might have. Most people travel with their own insurances and in many cases, are covered for such eventualities. In fact, specifically for clients travelling on tours, it is advisable to make personal insurance compulsory. However, in the event of blatant negligence, the other insurance company would still try and recover from your insurance or look for recourse against you.
- If applicable, inform the booking agent that the client booked through of exactly what happened so that they are well informed. These incidents have a habit of mushrooming once an ill-informed agent gets involved. This is especially important in the case of an injury or death where next of kin must be notified.
|TIP: Contracting a specialist, medical emergency response service is advisable as your liability for decisions made in a crisis situation will be transferred to the service provider and the incident recorded for future reference in the event of a personal injury claim being instituted against you. NB: Ensure that the service provider has sufficient medical malpractice insurance cover in place.|
A well-operated business must try and be as professional as possible so as to avoid the risk of actions of this nature. However no matter how hard we try there is always a chance of the unlikely happening and of course some clients are specifically looking for this eventuality. As these claims are often made in foreign currency, cover needs to be fairly substantial, usually in tens of millions. However do not become neurotic! Do not succumb to the obvious person who is trying to ruin your business. Make sure that your house is in order and fight the ridiculous claims and you should never have a problem. Remember that you are covered for those individuals who have a genuine claim.
Accidents will happen and it is comforting to know that your insurance will pay compensation to the unfortunate person who does lose an eye or damage their back by slipping. It must not be seen as losing a battle or admitting guilt but as a necessary backup for a genuine situation. Your insurance underwriter will fight for you. The problem may arise when you are not sufficiently covered for the magnitude of the claim. That is when your business is at risk because the shortfall would be payable by you, the service provider.
|TIP: Any claim of this nature must be heard in a court within the country in which you do business. Never sign a contract that requires you to accept a foreign law as the presiding law and which might mean that you have to defend yourself in a foreign country or where you sign your rights away to a booking office where you acknowledge responsibility / liability for any accident / incident.|
AII) PASSENGER LIABILITY INSURANCE
This covers incidents resulting from the transportation of passengers by land, sea or air and can often be included as part of a Motor, Marine or Aviation insurance policy.
|TIP: Care must be taken to check that the motor policy wording does not exclude fare-paying passengers.|
It is unlikely that an underwriter will be prepared to cancel or amend the wording of a standard motor vehicle policy, so make sure that the cover obtained is specifically for fare-paying passenger liability. These policies will invariably contain clauses in the policy wording that oblige you to comply with certain regulatory conditions, such as those in South Africa, which are laid down by the Department of Transport (Tour Operators Permit, Drivers’ PRDP, etc). In addition there may be certain mechanical devices required such as seat belts or speed inhibitors.
Passenger liability insurance basically covers passengers while in transit in a specified vehicle in the event of an accident. This is therefore an essential form of insurance and one that is most likely to be called upon. Many basic comprehensive vehicle policies carry a certain amount of passenger liability insurance but this is generally insufficient and does not cover all eventualities and geographical regions. It is therefore imperative that this section of a vehicle policy is beefed up and it is up to the individual company to make sure that all the regions in which they operate are covered by their policy.
To obtain a transport permit for a passenger-carrying vehicle, the law in South Africa currently stipulates a minimum of ZAR5 million per seven passengers on board and proof of such cover is required before a permit will be issued. This is generally sufficient but once again the individual company must assess their particular risk. Fortunately this insurance is not prohibitively expensive although one might have to find a broker with specific experience in this field to assist you in finding the appropriate cover.
This article, to be continued in the March 2016 edition of the Tourism Tattler Trade Journal, will elaborate on Passenger Liability insurance and cover the impact that the Road Accident Fund Amendment Bill in South Africa has had on this class of insurance cover – Ed.