Adequate liability cover is crucial for tourism business to mitigate risk. But how do you assess how much is required? Dorine Reinstein reports.
A tour operator is organising a safari for a group of UK travellers. However, during the tour, a wild animal attacks one of the guests. This happened to one of the tour operators insured with SATIB. Anthony Courtenay, CEO of SATIB, told Tourism Update that in this case the London-based insurers paid out a liability claim as a settlement rather than enter into litigation of £2,5m (roughly R60m).
So although undoubtedly a grudge purchase for most, Courtenay warns that liability cover is essential. “No one likes paying insurance premiums for something that may or may not occur but it just might happen to your company and you owe it not only to yourself and your clients, but, more importantly, to the tourism industry at large, to be adequately insured and fully aware of the procedures in the event of an accident or a claim.”
Andre Opperman, Widesure Brokers Authorised Financial Services, says even if you have done nothing wrong, if it’s alleged you have been negligent, the cover will protect you from investigation costs and legal costs. The insurer will appoint specific experts who are well experienced in your field, and whose expertise will count in a court of law.
According to Opperman, a lot of tour operators are still looking at R1m cover, thinking they can’t get claims of more. However, he warns that if a case gets to high court, the legal costs alone will be over R400 000. “R1m is not going to take you anywhere. R5m is better, R10m is preferred. But people want to pay as little as possible.”
Courtenay says understanding your target market is critical to assessing your exposure. When targeting international guests, tour operators need to take the weak rand into consideration.
“There is no definitive answer to how much liability you require – so our stance has always been to encourage our clients to take as much as they can afford,” says Courtenay. He says if tour operators want to quantify their risk exposure, they need to compile a detailed list of all potential hazards within their tourism service that could give rise to potential public liability risks. After carefully implementing procedures and practical measures to minimise each hazard, one should then attempt to quantify, in financial terms, those risks that are unavoidable in order to decide which risk exposures would need to be insured.
- General public liability
General Public Liability (GPL) insurance is designed specifically to protect businesses against any possible financial compensation claims by clients, guests or the general public where negligence could be construed to have been the cause of an injury or loss.
“As a general rule, it is far better to be over-insured than under-insured but this is directly proportional to the affordability of the required premium,” says Courtenay, warning that tour operators need to be wary of the “it will never happen to me” attitude.
According to Courtenay, the required cover or indemnity limit could depend on the ‘net worth’ profile of clients. He says the personal injury claims can be substantial. “Bearing in mind that the tourism industry attracts high-net-worth individuals, personal injury claims have the potential to be substantial. It is not uncommon for an injury claim to far exceed the operator’s insurance cover limits, which can ultimately lead to the relevant employee of the tour operator being declared insolvent and his or her employer (the tour operator company) being liquidated.”
Courtenay cites the example of a 40-something, married South African business executive who earns R500 000 a year, is the sole breadwinner and has three dependants. He or she slips in the shower at a lodge and sustains a disabling injury to the spine and is unable to perform the same job as before the incident. After a lengthy and costly legal case, the court finds that the lodge was 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 R10m in this example.
In the event of multiple claimants, or foreign guests whose income and future medical costs need to be calculated in their currency of origin, the cover amount needed could be higher. Says Courtenay: “Quite obviously, the cover amount needed corresponds to the profile of guests that your establishment caters for.”
- Passenger liability
In South Africa, the need for passenger liability insurance has often been debated due to the existence of the Road Accident Fund (RAF). This state-supported insurance fund provides cover for injury and loss of income to all road users in South Africa in the event of a road accident. The Road Accident Fund Act also prevents an injured person from suing the driver or owner of the vehicle.
However, according to Opperman, there are several reasons why it is still important to take out passenger liability cover. The RAF could be unable to pay, or the injured parties could sue for emotional shock. Passenger liability is also important when doing cross-border tours from South Africa or when dealing with international clients. He adds international service providers often demand that tour operators in South Africa have passenger liability cover.
“This is an essential form of insurance and one that is most likely to be called upon,” agrees Courtenay. He says 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.
“As a general rule of thumb, the cover you need depends on the average number of passengers that you transport at any one time and the nett worth of the individuals that you are transporting,” says Courtenay.
According to Courtenay, some policies recommend one million rand per seat but this does not make sense as it is more likely that one passenger in an accident will be more seriously injured than others and one million rand will not be enough to cover that one person in the event of serious injury.
It is important to check with the insurer if the limit provided is per occurrence or per passenger, as it will affect how much cover is required. Says Courtenay: “It is better to ensure that the indemnity limit covers all occupants of a particular vehicle, on a per incident, per occurrence basis, regardless of the number of passengers. Of course, the number of passengers that your vehicle is licensed to carry does make a difference in calculating the cover amount required and the premium payable. For instance, ten million rand may be sufficient for a microbus but a coach may need as much as one hundred million rand cover.”
- Professional indemnity
This is aimed at professionals such as travel agents, tour operators and event organisers, who offer advice, professional services, organise events and provide detailed brochures or itineraries to tourists and clients.
“It provides you with protection in respect of your legal liability arising out of the practice of your profession,” says Courtenay, adding that this normally arises as the result of negligent acts, errors or omissions. “The world in which professional tourism service providers operate is one of ever-increasing pressure, with demands for quick answers and cost-effective solutions. This pressure can lead to errors and omissions, which can and do give rise to claims.”
Courtenay warns that this cover is important because, even if you are blameless, you may nevertheless be drawn into lengthy disputes, which can be both financially and emotionally draining.
- Directors and officers liability
Directors and Officers Liability insurance covers damages that may be awarded to a plaintiff in a law suit as well as legal defence costs. The policy may be extended to cover criminal and regulatory investigations and trials.
According to Opperman, tour operators often wrongly assume this cover only applies to big companies. However, he warns that it is also important for smaller companies. He illustrates this with an example. “I’m a mountain guide company, you apply for a job and I don’t check your qualifications. If something goes wrong, the liability insurance doesn’t pay because the person I hired wasn’t a trained guide. The client can turn around and sue me, the director, for appointing the wrong guide.”
