New Public Liability Insurance Rules in India

On April 1, 2024, the Indian government made important changes to the Public Liability Insurance Act (PLIA) through the Jan Vishwas Act.  These changes increase the insurance coverage and compensation available in industrial accidents. 

Why New Rules?

The new rules are designed to make it easier for businesses to operate safely while ensuring public safety is never compromised. By increasing insurance coverage, the government aims to ensure that businesses are prepared to handle accidents without leaving the public or the environment vulnerable. This reform is especially important considering past industrial disasters, such as the 1984 Bhopal gas tragedy, which showed the need for stronger safety measures.

What is Public Liability Insurance?

Public liability insurance is a form of business insurance that safeguards companies against claims from the public. It covers legal expenses and compensation costs if a third party files a lawsuit against the business.

What is the Jan Vishwas Act?

The Jan Vishwas (Amendment of Provisions) Act, 2023 is a law that changes minor offenses from criminal charges to civil penalties. It was created to make business and daily life easier, while also building trust in the government.

Impact of New Rules- Public Liability Insurance

The Act requires all businesses that are dealing with hazardous substances must be able to provide immediate compensation to people affected by industrial accidents. This includes cases of injury, death, or property damage caused by their operations, as outlined in the Act’s schedule (see table below). To ensure that businesses can afford these payments, they must have a public liability insurance policy. According to the Act’s rules, the maximum insurance coverage is set at ₹5 crore per accident and ₹15 crore per year, covering up to three accidents annually.

Impact on Insurer

The recent changes have made Indian liability insurers rethink their approach. They now need to review not only the premiums but also how they handle new risks caused by these changes. While compensation under PLIA isn’t new in India, the coverage limits and premiums for these policies will have to be increased to cover the higher potential claims.

Impact on Insured

The new insurance limits are based on the money that companies owning hazardous substances have, but these limits don’t fully consider the actual risks of their dangerous operations. Companies buying insurance should take a close look at these new limits to see if they’re enough to cover the potential risks. They should decide if they need to increase their coverage or choose a lower excess limit, as long as the insurance companies and lawmakers allow them to do so. However, under the new rules, certain provisions could reduce the ERF corpus in the following ways:

Effect on ERF

ERF stands for "Environment Relief Fund" a fund created under the Public Liability Insurance Act (PLIA) to give immediate relief to victims of accidents involving hazardous substances, acting as a safety net when the insurance policy coverage is insufficient to cover the full compensation needed for such incidents; it is based on the principle of no-fault liability.

Example - Now if the limits are revised substantially, let’s say that an insured's paid-up capital is Rs100 crore, consequently, his policy limit is Rs100 crore per accident, in a worst-case scenario, if the policy limits are depleted, the ERF will be called upon to pay up to another Rs100 crore.

Bottom Line

The new Public Liability Insurance rules in India are a positive step towards ensuring safer industrial operations and protecting public welfare. By adhering to these new standards, businesses can not only avoid penalties but also contribute to a safer and more secure environment for all.