Did Oreva have Civil Liability insurance? Isn’t it time to make it mandatory for all projects, gatherings and establishments?

Diwali celebrations across the country came to an abrupt halt with news that more than 132 people had died when a suspension bridge in Morbi over the Machchhu River broke. The shock gave way to disbelief and intense indignation at various facts, including the 15-year contract of the Oreva group for the complete overhaul, renovation, operation and maintenance of the bridge.

The details reported by the media were even more shocking:

  • Oreva Group, a traditional manufacturer of clocks and electronics, won the contract despite having little experience in renovating or maintaining a historic suspension bridge. Still, he had been awarded the contract on a renewable basis since 2007, which was again renewed for a 15-year period from 2022 to 2037.
  • The contract included a clause that guaranteed “no interference” from the government or state agencies in maintenance or administrative tasks related to the bridge.
  • The renovations were due to be completed by December 2022, but the bridge was opened to the public nearly a month early, likely to take advantage of the festive holidays. This was done without the compulsory certificate of aptitude and the authorization of the civic authorities.
  • While the bridge could only safely accommodate 100 people at a time, the company reportedly sold between 400 and 700 unnumbered tickets. This is evident from the photos and videos of the large crowd on the bridge that fateful day.

Although many details are still being unveiled, one thing is conspicuously absent. There is complete silence in all the media on the fact that the Oreva group has solid Liability insurance (PLI) to cover these eventualities. The Oreva group should have had such insurance, either as a contractual mandate or as a risk management tool.

What is liability insurance and why is it relevant in the Morbi drama?

Liability insurance is a policy intended to reimburse a commercial enterprise if it is called upon to indemnify members of the public or innocent third parties in the event of death, bodily injury or property damage due to the premises or the operation of a commercial enterprise.

Interestingly, the policy is comprehensive enough not only to compensate victims, but if the business enterprise is sued for negligence or damage, it also covers legal costs to defend against such action.

Although this is the design of General Liability Insurance (GPLI), India also has a General Liability Insurance Act 1991 in force which stipulates that all owners of units handling substances dangerous must accept a civil liability insurance policy to compensate the victims of industrial accidents. However, this law does not apply to many public places that do not handle hazardous substances within the meaning of the law. Therefore, statutory liability insurance is not an unknown concept in India, it is simply not compulsory for everything businesses.

The huge human tragedy in Bhopal due to a gas leak from the Union Carbide factory in 1984 drew attention to the urgent need for social welfare legislation to ensure prompt compensation for workers’ accident victims. . These victims are usually unaware of the law and lack the financial means to pursue long and tenuous litigation against powerful giant corporations.

The law established a framework within which district collectors can take suo motu action in the event of industrial accidents in their jurisdiction. They are empowered to invite affected parties to seek redress, draw up a list of such claimants and other victims, and pay compensation within a specified time by requesting the company or industrial unit responsible for the problem to file the silver.

The jury is still out on whether this law has achieved its lofty goals and whether compensation and related issues are adequate enough. Although the adequacy of the PLI Act can be debated, it is abundantly clear that socially relevant legislation mandating liability coverage is needed in all public places such as restaurants, shopping malls, religious congregations , festivals, tourist attractions and even cinemas and theaters.

Whether it is the tragedy of the fire at the Uphaar Cinema in Delhi, the devastating fire that broke out in Kamala Mills, Mumbai or the Morbi disaster, these accident victims are not different from those who have suffered devastating industrial accidents and they are also disadvantaged.

The average Indian, even in their grief, tends to be fatalistic and believe in karma, rather than fighting for their rights and demanding that legitimate compensation be paid promptly and graciously. Compensation does not diminish grief or misery, but is a sort of monetary apology from the company where the accident occurred and often helps alleviate basic financial needs, lost wages or, in many cases, the consequences of losing a breadwinner.

Opponents of mandatory legislation will disagree with this suggestion, but it is the need of the hour as several aspects of the claims process are unclear and require proper iteration and legislated processes.

This is important because:

  • Tort law is not well developed in India.
  • There is very little legal awareness on the part of businesses and contractors that they have a duty of care to their customers who may be harmed or injured on their premises or as a result of their operations. They are required to provide immediate medical assistance in the event of bodily injury and to compensate them for any material damage.
  • The lack of awareness on the part of the company is exacerbated by a corresponding lack of legal awareness on the part of victims. Additionally, a victim needs the assurance of a clear framework that makes it easy to file claims and get reimbursed in a timely manner.
  • A proper legal framework would also establish the process of establishing liability and liability of the business owner to pay compensation, rather than the current knee-jerk reaction where politicians announce an ex gratia payment by dipping into the public treasury or national, primarily to appease victims and calm public anger. We hear many reports of how the poor and less literate struggle to get the promised compensation without clear laws.
  • An indirect benefit of compulsory insurance is that the most responsible insurers will prevail over business and industry to put in place appropriate safeguards to prevent the accumulation of bad risks on their books. A good example is how the insistence of insurers ensures that “Paramount Conditions” are adhered to in petrochemical complex property insurance policies, failing which the insurance industry may refuse to grant coverage. . This insistence has long been credited with ensuring their inherent security.

It is clear that any legislation that does not address the many shortcomings in the implementation of the Public Accountability Act (PLIA) in its current form will not achieve the intended results. Making the PLIA mandatory without these steps would only add to the friction of doing business and meet predictable opposition.

The changes described below are necessary to ensure that the objective of the Act is achieved, both in letter and in spirit:

  • The law gave district collectors the responsibility as well as the power to initiate suo motu action. They often lack procedural and substantive knowledge of the law, leading to unnecessary delays following a disaster. Information and training on the law must be part of their initial training.
  • An urgent review of the initial compensation provided by law is necessary. Today it is Rs 25,000 for death claims, Rs 12,500 for reimbursement of medical expenses and Rs 6,000 for property damage. These amounts were set in 1991 and were not intended to extinguish all liability claims, but to provide immediate relief. Unfortunately, the intent behind these amounts is poorly understood, even among insurance experts. This is often assumed to be total compensation. It is time for PLIA compensation to be brought to the same level as that for road and rail accidents. Victims should also be allowed to pursue the case and prove a higher right under the law.
  • All contracts for infrastructure projects, whether build, own-operate (BOO) and permutations that include transfer and maintenance, including those for the repair and renovation of existing infrastructure, must require the contractor, builder or beneficiary to obtain civil and professional liability insurance for a sufficiently large public for the entire duration of the project.
  • The general insurance industry is aware that most, if not all, metro construction projects across India uniformly have public and professional liability insurance mandates. This is a universal best practice adopted by developed countries around the world. The government cannot be selective in implementing these best practices in selected pockets or when employing large foreign contractors for sophisticated tunnels that will not work anyway without such insurance coverage.
  • Claims processing must be prompt and impartial. In the event of road accidents, where the Motor Vehicle Accident Claims Tribunal (MACT) requires the submission of mandatory vehicle liability insurance to the owner, after which the entire claims process is handled by the vehicle’s insurer, independent of the owner. A similar claims handling system needs to be put in place for PLI as the key to its success lies in the ease of making claims and receiving compensation.

General insurance companies have a well-defined expertise in dealing with personal compensation claims, whether for road accidents or health insurance. A push in the right direction from lawmakers could see similar expertise being developed for accident and liability insurance policies covering the same.

These are steps in the right direction and much needed in a country like ours, where the next catastrophe is imminent and indeed how many more tragedies are needed before we realize the need for liability insurance civil coverage for large infrastructure, construction and industrial projects as well as smaller establishments such as banks, restaurants, public gatherings, tourist attractions as well as hotels and shopping malls?

(Uttara Vaid has over 30 years of experience in the insurance industry and is the founder of Uttara Vaid Advisory Services LLP.)