This briefing provides an overview of Employers’ Liability  Insurance (“ELI”) for businesses.

Key points

  • Employers (with very limited exceptions) are under  a statutory obligation to maintain ELI.
  • ELI is designed to ensure the availability  of funds (from the insurer or, if the insurer is  insolvent, the Financial Services Compensation  Scheme) to compensate an employee who  suffers bodily injury or a disease “arising out  of and in the course of their employment”  whether or not the disease manifests itself after  the employment.
  • „ ELI is distinct from public liability insurance and  specific health and safety legislation.
  • An employer commits an criminal offence  punishable by a fine if it:
    • fails to have the necessary insurance in  place on any day; or
    • fails to display a copy of the ELI insurance  certificate at each place of business at which  he employs any relevant employee.
  • The statutory obligation to insure applies  equally to companies who only employ  directors (who may also be shareholders) and no  other “employees” (although see the sole trader  exception below).

Is ELI compulsory?

Yes, ELI is compulsory.  Unlike public liability insurance (which  is optional) employers’ liability insurance is one of two types of  compulsory insurance in Great Britain, the other being motor  insurance.  An employer with business activities in Great Britain (including offshore installations) is under a statutory obligation  to maintain insurance against the employer’s “liability for bodily  injury or disease sustained by his employees, and arising out  of and in the course of their employment in Great Britain in  that business.” (s.1(1) of the Employers’ Liability (Compulsory  Insurance) Act 1969 (the “Act”)).

An employer commits a criminal offence and will be liable for a  fine if, on any day, it does not have the necessary insurance in  accordance with the Act (s. 5 of the Act).

Who is under a statutory obligation to  maintain ELI?

The obligation to insure applies to: “every employer carrying  on any business in Great Britain”. The definition of “carrying on  a business” is broad and “includes a trade or profession, and  includes any activity carried on by a body of persons, whether  corporate or unincorporate” (s.1(3)(c) of the Act).  There are  two exclusions worth noting (although other exclusions exist  in relation to employee compulsory motor insurance schemes  and mutual assurance schemes):

  • Public/local authority exception - Certain public  authorities and government bodies are exempted from  the statutory obligation to maintain employers’ liability  insurance.
  • Sole trader exception - Where a sole trader incorporates  and employs one person who owns at least 50% of the  share capital, the statutory obligation to insure does not  apply.

Who constitutes an “employee” for the  purposes of ELI?

The definition of “employees” is broadly defined and includes a  contract for “manual labour, clerical work or otherwise, whether  such contract is expressed or implied, oral or in writing.

Casual/part-time workers - Casual or part time workers will  trigger the obligation on the employer to insure.  It does not  matter whether the contract is oral, implied or in writing.

Workers paid by a third party - Complications arise where  an employee is employed and paid by Employer A and is  temporarily employed (although not paid) by Employer B.  The general test is not who the employee usually works for  or who the employee is paid by but “who has at the moment  the right to control the manner of execution of the acts of the  [employee]” 1.In these circumstances, if the policy only covers  those employees who have a contract of employment, this may  result in the employee temporarily employed by Employer B  having a legitimate claim against Employer B, without Employer  B having the benefit of insurance.

Family business exemption - Where the employer is a direct  family relation of the employee, the employer may not need to  obtain ELI in relation to that employee.

Employees not resident in Great Britain - The Act itself does  not apply to those individuals who are “not ordinarily resident in  Great Britain”. However, the Employers’ Liability (Compulsory  Insurance) Regulations 1998 (the “Regs”) amended the  obligation to insure under the Act so that it is now triggered for  an employee who is: not ordinarily resident in Great Britain but  has either: i) spent 14 days continuously in Great Britain; or ii)  spent more than seven days on an offshore installation.

Employees based abroad are subject to the employment  jurisdiction in which they work. There may be compulsory  insurance requirements in that country.  Local legal advice  should be sought.

Insurance Policies in Practice - The policy wording  should always be consulted.  The ABI issued guidance to  businesses in 2013 stating that a standard ELI policy should  (notwithstanding the exceptions above) cover non-usual  employees such as, persons hired or borrowed from another  employer (e.g. drivers or operators of hired plant), work  experience students and homeworkers.

What is the scope and extent of  employers’ liability insurance?

Does the obligation to insure apply where the company  has directors but no “employees”? Yes. There is a common  misconception that the obligation to insure does not apply  where the only employees of the company are the directors of  the company (who are often the shareholders). This is incorrect.  The only related exception to the obligation is the “incorporated  sole trader exception” (see above).

Are there any limits to policy terms? Yes. The Regs specify  certain criteria for ELI policies. For example, an approved  policy must not contain provisions which limit the coverage by  reference to the employer’s failure to exercise reasonable care,  failure to adhere to health and safety regulations or the keeping  of specified records by the employer. However, an insurer can  maintain in the policy the right to recover any payment to an  employee from the employer for such failures (assuming the  employer can pay). In addition, employers cannot charge the  employee for the maintenance of the insurance.

What is covered by employers’ liability insurance? ELI  relates to the liability of the employer for bodily injury or disease  occasioned to the employee.  It does not cover damage to the  employee’s property.

Does there have to be a causal link between employment  and the injury/disease? Yes - the injury/disease must be  “sustained by his employees, and arising out of or in the course  of his employment”. Accordingly, an employee injured as a  passenger in the car that the employer had provided to take  him to work was not injured in the course of his employment  because the employment contract said nothing about the  employee being obliged to travel to work in the vehicle  provided2 .

When does the injury/disease have to occur?

The generally  accepted trigger for ELI is bodily injury or disease caused during  the employment even if the disease manifested itself at a later  date3 .This has caused particular problems for employers when  it comes to ‘long tail’ diseases such as mesothelioma where  injuries by exposure may technically have happened many years  before the disease manifests itself in diagnosable symptoms.   Whilst the courts have seen extensive litigation attempting  to define the timing of relevant ‘triggers’ in such cases, the  practical consequences are that employers often struggle to  trace relevant historical insurers (assuming they are still solvent).   Conventionally, tracing historic insurers has depended on the  record-keeping practice of the individual insurer or the fortunes  of an insurance investigator or ABI trace search.  Going forward,  the FCA has required that data on new or renewed ELI policies  from 1 April 2012 onwards is maintained by insurers and the  vast majority are registered on the EL Database maintained  by the industry-established Employers’ Liability Tracing Office  (ELTO).  To the extent that EL data has been maintained prior  to 1 April 2012 (whether with ELTO or otherwise), that has been  and remains largely voluntary.

Do employers have any other specific  duties in relation to ELI?

Yes, employers have other duties in relation to ELI.  The insurer  must issue the employer with a certificate evidencing the  insurance not less than thirty days after the commencement  date.The employer must “display one or more copies of it  at each place of business at which he employs any relevant  employee of the class or description to which such certificates  relate”. Failure to do so is an offence.

This may seem onerous, however, the certificate can be made  available in electronic form if each employee to whom it relates  has reasonable access to it in that form.