A Commentary on the Latest Amendments in the Public Liability Insurance Act (PLIA)
The landscape of Liability Insurance has always been challenging. Apart from the complexity of
the wording, the lack of uniformity in underwriting practices and appetites across major liability
insurers in the country, what whips up a perfect storm is a sudden, unprecedented and dramatic
regulatory change.We recently witnessed just such a change in the Public Liability Insurance Act (PLIA), pushing Indian
Liability Insurers back to the drawing board, putting under a lens not only the premiums, but the
complete underwriting of the new risk exposures created by the amendments.
The entire impact of these changes can be understood only when we analyze the recent amendment of the Public Liability Actnotified on 1st April 2024 in consonance with the amendment of the Public Liability Rules passed on 17th December 2024. Furthermore, it seems
like, there have been no amendments in the Environment Relief Fund scheme gazetted in 2008,
apart from continuing United India General Insurance Company’s role as the Administrator of the Fund from 2008 to date.
Having gone through most of the amendments, my initial thoughts converged on the following
issues. To provide some context, I am also reproducing the significant increases in maximum
limits of insurance and the compensations awarded for Death and Property Damage so that the
issues discussed here can be appreciated in their backdrop and perspective.
The compensations have been revised significantly for e.g. Death Claims now payable at
Rs. 5 lacs per casualty in addition to Rs. 150,000 Medical expenses incurred for the victim
(from hitherto Rs. 25,000 per death claim) and Property Damage claims now payable at
actual damage subject to a maximum Rs. 50 lacs (from hitherto actual damage subject
to a maximum of Rs. 6,000 per Property Damage claim)
The limit of Indemnity is now pegged to Paid-up capital of the Owner of the Unit Handling
Hazardous Substances, and if the Owner is not a Company, then the market value of all
assets and stocks of the undertaking on the date of contract of insurance. The maximum
limits of indemnity under such insurance are Rs. 250 crores Any One Accident and Rs.
500 crores Any One Event. The maximum limits are revised from Rs. 5 crores Any One
Accident and Rs. 15 crores Any One Event).
The Act also states that every unit which has a separate licence to operate under Air/Water
(Prevention and Control of Pollution) Acts needs to take a separate PLIA policy. This will
widen the number of potential Insureds considerably.
Almost all the Insurers I have had a chat with are in agreement that with the above sweeping changes, the premiums charged so far will now seem quite inadequate for covering the new exposures. Therefore, whilst statutory compensation under PLIA is not a new concept in India for Indian Insurers, the policy limits and the premiums charged for the same policies post these amendments will have to be revised upwards considerably to account for the increased magnitudes of the potential claims. Many of them are now taking a view that the entire product needs to be refiled with the IRDAI with revised limits and premium tables to reflect the new reality.
My reading of the amendments leads me to conclude that that the Paid-up capital of the Owner of the Unit handling hazardous substances is expected to determine the Limits of Insurances, specifically the Any One Accident (AOA) limit rather than the Any One Year (AOY) limit and that the new ratio in most policies between AOA to AOY is likely to be 1:2 rather than 1:3 hitherto established.
This of course leads us to the contribution to the Environment Relief Fund (ERF). Since the erstwhile limits of Insurance were low, ERF was established with the following important objectives:
The ERF would be created by asking every Owner to pay an equivalent premium amount
as a contribution to the ERF and he would be then given an equivalent Excess limit on the
limits of his PLIA Policy.
If the compensation payable under PLIA Policy exceeded both; viz the policy limit per
accident and the Excess limit allowed under ERF, then the balance liability would revert to
the Owner, now payable from his end.
The latest amendments have not changed the above position, and this was quite alright when the
limits of indemnity were low, the premiums were low, and the compensations were low. Now if the
limits are revised substantially, and the premiums go up commensurately, then equivalent
premiums contributions to the ERF will substantially increase the cost of doing business for
Owners of units handling hazardous substances.
Till March 2019, the fund had grown to a staggering Rs 810 Crores (as per an article by Debadityo
Sinha1) and by now the ERF could be upwards of Rs. 1000 crores. Apart from the identical
premium payment contribution to the ERF, there are steep fines (twice the Annual Premium) for
non-compliance with the Act provisions and directions, which will considerably add to the corpus
of the ERF. However, amounts that can be called upon by the ERF for restoration of damage to
public property by the State authorities (which cannot be more than 10% of the ERF corpus for
any single accident) may also lead to considerable erosion of the Fund.
From the insurance point of view of course, the one ameliorating point that cannot escape the
Insurers’ attention is that since the liability arising under the PLIA is a statutory liability, there will
be no claim for defence costs which should be a major relief in this class of business unlike other
Liability classes of business!
As also the fact that like most Statutory Insurances, this is also on an Occurrence Basis, so while
there may be no Retrodate complications, there may be demand from the Insureds and their
brokers for a short Sunrise Clause dating back to 17th Dec 2024.
What may be a cause for concern for the Insurers will be the newly introduced Sec 5A of the Rules
gazetted on 17th Dec 2024, reproduced as follows,
“In case any accident occurs in any industrial unit, the industrial unit shall publicise among the
affected persons regarding their right to claim for relief under the Act and these rules.”
So far the Indian Insurers have been steadfast in their stand and have strict clauses in the Claims
Handling sections of most Liability policies stating that” the Insured shall not assume liability, nor
agree to indemnify any third party claimant”, they will need to make adjustments in their mindset
that the newly revised law actually expects the Insured to publicise / in other words solicit claims!
Another cause of concern for the Insurers may as well be that the increased new limits under
Statutory PLIA may sound the death knell for the Common Law Public Liability Insurance now
given under Commercial General Liability policies or Stand Alone Public Liability Policies? This
may not impact on the following:
Establishments which do not fall under the purview of the Owners Handling Hazardous
Substances.
Contractually mandated policies that many of the Business Owners need to take in
compliance with their overseas customers requirements.
In any case, the Insurers would do well to remember that Clause 8(2) is still retained under the
PLI Act reproduced hereunder:
“Notwithstanding anything contained in sub-section (1), where in respect of death of, or injury to,
any person or damage to any property, the owner, liable to give claim for relief, is also liable to
pay compensation under any other law, the amount of such compensation shall be reduced by
the amount of relief paid under this Act.”
This effectively means that should an Insured opt for both Policies – the Statutory and the
Common Law CGL/ Public Liability Industrial, the latter will automatically have a very high Excess
in terms of Statutory Compensation awarded under the Act. This automatically should entitle the
Insured for a substantial discount in the Annual premiums chargeable under the Common Law
Policies for the same Insured and will go a long way towards reducing the premium burdens that
these amendments are sure to bring.
One amendment which is long overdue, urgently and seriously needed and would have been
welcomed is to have widened the scope of the PLIA to apply to all businesses who have a
public interface rather than being restricted only to units handling hazardous substances.
Cases in point have been the Morbi Bridge disaster, the Tirumala Stampede, the Ghatkopar
Hoarding crash, all of these have occurred in places which would not fall under the definition of
Owner Handling Hazardous Substances and therefore would have no Public Liability Insurance
but have caused serious tragedies resulting in loss of lives and grievous injuries to third parties.
Will the Government continue to dip into the National Exchequer to compensate these victims?
There was an opportunity here to fix this glaring lacuna, unfortunately it seems to be an
opportunity lost for now.
A Commentary on the Latest Amendments in the Public Liability Insurance Act (PLIA)
The landscape of Liability Insurance has always been challenging. Apart from the complexity of the wording, the lack of uniformity in underwriting practices and appetites across major liability insurers in the country, what whips up a perfect storm is a sudden, unprecedented and dramatic regulatory change.We recently witnessed just such a change in the Public Liability Insurance Act (PLIA), pushing Indian Liability Insurers back to the drawing board, putting under a lens not only the premiums, but the complete underwriting of the new risk exposures created by the amendments.
The entire impact of these changes can be understood only when we analyze the recent amendment of the Public Liability Actnotified on 1st April 2024 in consonance with the amendment of the Public Liability Rules passed on 17th December 2024. Furthermore, it seems like, there have been no amendments in the Environment Relief Fund scheme gazetted in 2008, apart from continuing United India General Insurance Company’s role as the Administrator of the Fund from 2008 to date.
Having gone through most of the amendments, my initial thoughts converged on the following issues. To provide some context, I am also reproducing the significant increases in maximum limits of insurance and the compensations awarded for Death and Property Damage so that the issues discussed here can be appreciated in their backdrop and perspective.
Almost all the Insurers I have had a chat with are in agreement that with the above sweeping changes, the premiums charged so far will now seem quite inadequate for covering the new exposures. Therefore, whilst statutory compensation under PLIA is not a new concept in India for Indian Insurers, the policy limits and the premiums charged for the same policies post these amendments will have to be revised upwards considerably to account for the increased magnitudes of the potential claims. Many of them are now taking a view that the entire product needs to be refiled with the IRDAI with revised limits and premium tables to reflect the new reality.
My reading of the amendments leads me to conclude that that the Paid-up capital of the Owner of the Unit handling hazardous substances is expected to determine the Limits of Insurances, specifically the Any One Accident (AOA) limit rather than the Any One Year (AOY) limit and that the new ratio in most policies between AOA to AOY is likely to be 1:2 rather than 1:3 hitherto established.
This of course leads us to the contribution to the Environment Relief Fund (ERF). Since the erstwhile limits of Insurance were low, ERF was established with the following important objectives:
The latest amendments have not changed the above position, and this was quite alright when the limits of indemnity were low, the premiums were low, and the compensations were low. Now if the limits are revised substantially, and the premiums go up commensurately, then equivalent premiums contributions to the ERF will substantially increase the cost of doing business for Owners of units handling hazardous substances.
Till March 2019, the fund had grown to a staggering Rs 810 Crores (as per an article by Debadityo Sinha1) and by now the ERF could be upwards of Rs. 1000 crores. Apart from the identical premium payment contribution to the ERF, there are steep fines (twice the Annual Premium) for non-compliance with the Act provisions and directions, which will considerably add to the corpus of the ERF. However, amounts that can be called upon by the ERF for restoration of damage to public property by the State authorities (which cannot be more than 10% of the ERF corpus for any single accident) may also lead to considerable erosion of the Fund.
From the insurance point of view of course, the one ameliorating point that cannot escape the Insurers’ attention is that since the liability arising under the PLIA is a statutory liability, there will be no claim for defence costs which should be a major relief in this class of business unlike other Liability classes of business!
As also the fact that like most Statutory Insurances, this is also on an Occurrence Basis, so while there may be no Retrodate complications, there may be demand from the Insureds and their brokers for a short Sunrise Clause dating back to 17th Dec 2024.
What may be a cause for concern for the Insurers will be the newly introduced Sec 5A of the Rules gazetted on 17th Dec 2024, reproduced as follows,
“In case any accident occurs in any industrial unit, the industrial unit shall publicise among the affected persons regarding their right to claim for relief under the Act and these rules.”
So far the Indian Insurers have been steadfast in their stand and have strict clauses in the Claims Handling sections of most Liability policies stating that” the Insured shall not assume liability, nor agree to indemnify any third party claimant”, they will need to make adjustments in their mindset that the newly revised law actually expects the Insured to publicise / in other words solicit claims!
https://vidhilegalpolicy.in/research/tracking-funds-to-provide-relief-to-victims-of-environmental-hazards/
Another cause of concern for the Insurers may as well be that the increased new limits under Statutory PLIA may sound the death knell for the Common Law Public Liability Insurance now given under Commercial General Liability policies or Stand Alone Public Liability Policies? This may not impact on the following:
In any case, the Insurers would do well to remember that Clause 8(2) is still retained under the PLI Act reproduced hereunder:
“Notwithstanding anything contained in sub-section (1), where in respect of death of, or injury to, any person or damage to any property, the owner, liable to give claim for relief, is also liable to pay compensation under any other law, the amount of such compensation shall be reduced by the amount of relief paid under this Act.”
This effectively means that should an Insured opt for both Policies – the Statutory and the Common Law CGL/ Public Liability Industrial, the latter will automatically have a very high Excess in terms of Statutory Compensation awarded under the Act. This automatically should entitle the Insured for a substantial discount in the Annual premiums chargeable under the Common Law Policies for the same Insured and will go a long way towards reducing the premium burdens that these amendments are sure to bring.
One amendment which is long overdue, urgently and seriously needed and would have been welcomed is to have widened the scope of the PLIA to apply to all businesses who have a public interface rather than being restricted only to units handling hazardous substances. Cases in point have been the Morbi Bridge disaster, the Tirumala Stampede, the Ghatkopar Hoarding crash, all of these have occurred in places which would not fall under the definition of Owner Handling Hazardous Substances and therefore would have no Public Liability Insurance but have caused serious tragedies resulting in loss of lives and grievous injuries to third parties. Will the Government continue to dip into the National Exchequer to compensate these victims? There was an opportunity here to fix this glaring lacuna, unfortunately it seems to be an opportunity lost for now.