Comment on and response to Draft PAS 520:2017 report

Comment on and response to the question of and recommendations made regarding insurance in the Draft PAS 520:2017 report.

By Nick Elwell

BGi.uk
Portwell House
Market Place
Faringdon
Oxfordshire
SN7 7HU

22^nd December 2016

4.5 Insurance

The swimming school should maintain appropriate levels of insurance to protect all areas of its service activity, including cover for coaches, teachers and instructors. Consideration should also be given to volunteers who, in the event of an injury, could claim employees’ rights.

NOTE 1 Swimming schools are encouraged to consult with a specialist broker but recommended cover is public liability and professional indemnity protection, for a limit of indemnity per occurrence, of £10 m.

NOTE 2 Swimming schools with employees are required by law to have Employers Liability protection. The accepted limit of indemnity is £10 m.

NOTE 3 Swimming schools that are an incorporated entity (a limited company) are subject to the same laws that govern all UK companies. If they are in breach of them or a third party makes a claim as a consequence of the management of the company, individuals could be held personally liable. That being the case a management liability (or Directors and Officers Indemnity) policy is recommended. The recommended limit of indemnity is £5 m.

NOTE 4 Attention is drawn to the Statutes of Limitations (under UK law) [5] where strict time limits apply for making a personal injury claim. The Statute of Limitations for injury to children starts at the 18th birthday. In practice this means if an injury occurred to a child, under the age of 18, he/she has until the age of 21 to initiate proceedings. 

Is The Blunderbuss Approach appropriate?

The imposition of unnecessary and unrealistic indemnity limits may look “safe” but will probably not achieve the aims of the advice given by the author. The imposition of these limits will almost certainly have a negative effect on (especially) small schools, groups and individuals – and, perhaps more importantly, the general public who they serve.

Swim teachers are not highly paid but, even now, young parents often struggle to meet the current cost of swimming/nurturing lessons. An increase in insurance costs will have to be passed on to those parents: this will reduce the numbers of those who can afford to be involved.

It is more important to design the insurance cover to be effective against likely claims – rather than insisting on huge but meaningless numbers.

To consider the correct indemnity limit one must consider the worst possible scenario. Not a pleasant task – but an important one. However, one must also consider the policy terms and conditions. To simply say the recommended cover is public liability and professional indemnity protection, for a limit of indemnity per occurrence, of £10 m. is itself unclear.

Indeed, the authors of PAS520:2017 have put themselves in “the firing line” of large claims that could be levied against them if a swim teacher or school, having followed their advice, found that advice to be inadequate or defective.

Note 1: The following questions must be answered before advice on indemnity limits can be given.

1. What is the highest possible claim that any one teacher could cause? A very high claim might result from brain damage to the infant caused by the instructor’s negligence.
2. That claim is not likely to exceed £2.0M
3. It would not be possible to injure two infants to this extent simultaneously
4. What are the likely clauses of a claim?
5. Actual bodily injury (Public Liability)
6. Financial Loss (Professional Indemnity)
7. Damages for injury caused (Malpractice) This cover is not required within PAS520:2017

Malpractice Insurance is particularly important to those performing baby massage or other similar activities/therapies.

3. What policy conditions are required?
4. Any one claim – but no limit during the period of insurance
5. Any one claim with a limit during the period of insurance
6. Does the indemnity limit apply to the individual (as with personal policies), or
7. Does the indemnity limit apply to the organisation (as it would for a business**)

[** this would immediately make the entire system inequitable as the larger organisations would effectively be providing much lower cover per capita]

4. Some individual policies will automatically include assistants (life guards, other Mums, friends). Some will not. The recommendation in PAS520:2017 is silent on this.
5. Who is responsible for checking the adequacy of cover. The Insurance Act 2015 passes a good deal of the responsibility for identifying “risk and material fact” back to the insured. Few Swim Schools and fewer teachers will have this skill. The advice given by the authors to seek advice from knowledgeable brokers is only directed at swim schools – not individuals. Many individuals are tied into compulsory schemes such as that arranged by the ASA. They have little or no choice as to the insurance protection they buy.
6. What are the other generally accepted policy extensions that should be included? None of the following are mentioned in PAS520:2017
7. Indemnity to principal
8. Damage to hired premises
9. Libel, slander & loss of documents, Breach of confidentiality
10. Web, Internet & e-mail infringement
11. Product Liability
12. Extended run off and retro-active dates extensions
13. Member to member liability

Opinion:

• A safe limit of indemnity is probably £1.0M
• To double this to £2.0M would be to match the general limits provided by insurers across the country.
• To provide £5.0M would be to match the limits usually required when dealing with government institutions (such as hospitals) and major industries.
• More than £5.0M seems superfluous.

Note 2: Legal minimum indemnity limit is less than £10.0M but most insurers provide this as a standard limit. There some little understood principles that everyone should be aware of.

1. Strictly speaking, Employers Liability Insurance is not really “liability” cover. It is more easily explained if one adopts the term used overseas: Workers Compensation. Anybody injured at work can claim liability from the employer. The complex bit is defining the term employer.
2. The term “Labour Only Subcontractor” would seem to apply to builders and the like. However, in general terms, anyone working for another without a contract of employment might be considered a “self-employed contractor”. This applies also to volunteers, general helpers – and anyone who might act of the instructions of the employer – whether for love or for money.

Opinion:

• For individuals and small firms, this is at best a grey area. There is seldom a good or bad solution when dealing in grey areas and cost is often the deciding factor.
• Employer’s liability insurance is not required when employing family.

Note 3: It is difficult to understand why indemnity limits for notes 1. and 2.  Are recommended at £10.0M but for directors and officers only £5.0M. These seem to be arbitrary amounts rather than considered ones.

Management Liability is something that a number of organisations should consider. In addition to Limited companies, Charities. LLPs, Clubs and Associations should all be aware of their responsibilities and liabilities.

So, to consider a sensible indemnity limit one should consider a similar Risk Management exercise as outlined in Note 1: with a couple of additional considerations that might be included or excluded under a “D&O” policy:

1. Claims against an insured person
2. Employment
3. Outside entity
4. Pension or employee benefit schemes
5. Pollution
6. Representation
7. Bail costs
8. Cyber Risks
9. Additional cover

 

Additional defence costs. In the event that the limit of indemnity for this section is exhausted insurers will pay for additional defence costs up to the amount stated in the schedule, provided that the insured person has previously not been the subject of a claim for a wrongful act or series of wrongful acts that led to the exhaustion of the limit of indemnity for this section. This additional cover applies to the payment of defence costs only.

Opinion:

• It is unusual for the indemnity limit under this contract to be as high as for the general liabilities. The policy is principally designed to provide defence costs, penalties and fines. Where criminal action is identified the policy will offer no assistance.
• We would consider an indemnity limit of £250,000 to £500,000 to be adequate for most swim schools and similar organisations. There are always exceptions to the rule and each case should be considered individually.

Note 4: This is a point well made – but one that any competent insurer and/or broker will be aware of. My understanding of the law is that it applies only to personal injury claims: not to the other covers provided within this class of insurance.

Overview:

• The introduction of “minimum recommended indemnity limits” within the PAS520:2017 is both counter intuitive and counter-productive. I am sure the purpose of mentioning insurance within the document is to demonstrate that all members are properly insured: not just insured to high limits.

• Although the insurance is in the name of the teacher or school, the purpose of the policy is to make good any losses how-so-ever caused to the public. Being forced into taking a policy with unnecessarily high indemnity limits at the expense of less-wide cover is not the best use of scarce resources and does not offer the public the protection they deserve.

• Having to pay for insurance within membership fees as an individual member of some groups and again as a small business seems an inequitable duplication – whatever the indemnity limit.

Conclusion:  The Blunderbuss Approach is not appropriate in these circumstances.