Insurance for local councils

The insurance requirements for local councils are as wide and as varied as the jobs and services they provide, especially with many of their principal authorities looking to devolve services, so seeking professional independent advice to ensure that insurance needs are met is vital. There are a number of covers which are appropriate to the majority of councils, and while insurance policies have become much clearer and easier to understand over the years, there are a number of terms that are important for councils to understand in order to ensure correct cover in the event of needing to make a claim. This article provides a broad overview; for a more detailed discussion, please contact the writer.

Firstly, a fair presentation of risk must be made to insurers. This must disclose, in a reasonably clear and accessible manner, every material circumstance that is known, or ought to be known, by those responsible for arranging insurance, following a reasonable search. If you deal via an insurance broker, they will assist in delivering the information to the insurer in an agreed format. Dealing directly with an insurer puts a greater onus on the council to ensure that all facts are known. Useful documentation to assist in this process can include copies of the current insurance schedule and asset register, projected budget, full details of past claims, services provided by the council, construction of properties, any unusual features or special events, and so on.

Set out below are the principal covers needed by local councils, with a brief explanation of what cover is generally provided. There will be further terms and conditions applicable that will vary by insurer, but all will include a condition of “reasonable care”, whereby the council will be required to act reasonably and responsibly and not to expose the insurer to unnecessary risks and hence claims. There could be conditions precedent to liability, such as minimum security requirements or alarm conditions, which would mean that a claim would only be met if the council had complied with these specific conditions. There are also standard exclusions where cover is just not provided: these can include wear and tear or maintenance, for example.

Some covers will include sums insured (such as property covers), others will have limits of indemnity (such as liability covers). Some covers are on a “claims made” basis (when you first become aware of a claim and can notify insurers), others on a “claims occurred” basis (regardless of when the claim is notified, the insurer at the time of the event will pick up). You should also check whether cover is offered on a “costs inclusive” basis or “in addition”. For example, if your employer’s liability cover is set at £10 million and is on a costs inclusive basis, then the maximum payout would be £10 million including legal defence costs. However, if it were on a costs in addition basis, then the maximum payable could be over £10 million, as costs would be in addition to the limit of indemnity.

Standard covers

Employer’s liability: This covers the legal liability of the council for negligence following death, bodily injury or disease happening to employees, councillors or volunteers arising out of the course of their employment, and is a legal requirement. Most insurers provide £10 million of cover (with restrictions for terrorism); higher limits can be obtained and are usually rated on the wages paid, with a higher rate for manual than clerical workers. This would cover such eventualities as a member of staff injuring themselves at work due to poor facilities/equipment or lack of risk assessment.

Public and products liability: Public liability insurance covers the legal liability of the council for accidental injury to third parties (members of the public) or damage to third party properties (property not owned by the council). Products liability covers any products supplied. Most providers are currently offering £10–15 million limits on indemnity, but higher limits can be obtained. Public liability has many rating elements but is often based on total income or population; it will also consider higher-risk items such as play areas or large events. Within this cover there are often extensions such as hirer’s liability, which extends the liability to include hirers of council halls (non-commercial).

Officials’ indemnity: This covers legal liability for negligent acts, accidental errors or omissions committed in good faith by council members, officials or employees in relation to council business. It is important that “entity” cover is also included to provide cover to the council itself and not just the people who work for it.

Fidelity guarantee (employee dishonesty): This protects the council against acts of fraud or dishonesty by employees or councillors. The level of cover usually reflects the maximum sums at risk, so for most councils it would be half the precept plus the running account and reserves when the half precept is received. It should be noted that this type of cover often has numerous policy terms and conditions. As a minimum, the council should be strictly following its financial regulations, and if it does not then it will probably be breaking the policy terms and conditions, and cover may not be offered in the event of a claim.

Material damage: This is normally on an “all risks” basis, so will provide cover for claims resulting from fire, explosion, lightning, aircraft, earthquake, riot and malicious persons, storm or flood, escape of water, impact, theft, subsidence or any other accident (with certain exclusions). This will cover the fixed physical assets of the council, including buildings and contents along with assets such as street furniture, play areas, war memorials, statues, walls, fences, etc. Your current asset register is a good place to start when considering this cover (though an asset register will usually show the purchase price, which is not suitable for insurance purposes). It is important that correct sums insured are provided for adequate cover to be operative: for buildings and fixed assets, the sum needs to represent demolition and site clearance along with rebuild costs, including professional fees and VAT if appropriate; for contents and similar, it needs to be the new replacement cost. It is important that the total at risk is covered and not just items over a certain figure or a likely maximum claim cost, otherwise under-insurance and average could apply. Average will normally apply to policies, meaning that if the council under-insures then any valid claims payment could be reduced by the amount of under-insurance. For example, if a building should be insured for £100,000 but is only insured for £50,000, then any claims payment will be reduced by 50%. Most covers are settled on a reinstatement basis i.e. insurers will pay for repair or replace the item with a new one that is equal to but not better than the item lost or damaged. Some covers may be on an indemnity basis, i.e. what the market value is or what the item is worth second-hand.

All risks: In addition to material damage, cover may be required for items which move around more, and cover on a UK-wide or even worldwide basis may be required. This could be for items such as council regalia, laptops, mobile phones, garden machinery and tools, event equipment, etc. There could be restrictions on overnight or unattended cover.

Business interruption: This will cover financial loss as a result of an insured event (fire, theft, storm, etc.). It can cover loss of income (rent, hirings, takings, etc.) while the damage is being made good. Indemnity periods (the length of time the claim will be paid for) can vary between 12 and 36 months as a rule. In calculating indemnity periods, you need to consider how long it will take for the property to be repaired (bigger or listed buildings will take longer). It is important that you also consider how long it will take to get the income back up to what it was before the claim. There should also be cover for increased/additional costs of working, which includes things such as temporary office rental, furniture, systems, etc.

Terrorism: Damage caused by terrorism is usually excluded under policies, and while the risk of a terrorist attack to a local council is quite low, it is good risk management to consider adding the cover. If a council has a large portfolio of buildings, for example, where would it get the money if it did suffer an attack on its property?

Money: Although we live in an increasingly cashless society, councils still handle cash during events or if they operate venues, and this insurance will provide cover up to agreed limits on-site and in transit. It will usually include assault cover for those carrying the money.

Personal accident: This can cover staff, councillors and volunteers, and cover varies with different providers. Some provide 24-hour cover, others work-related only. This tends to be an accident-only cover, but sickness can be included. The benefit is payable to the council and not to the individual, and is principally there to cover additional costs incurred by the council.

Commercial legal expenses: This can provide free legal advice via a helpline and also agreed legal costs, protecting councillors, clerks and councils in such matters as employment, tax and contract disputes.

Libel and slander: In the heat of a council meeting, things can often be said in haste. This cover provides protection against verbal or written comments made by a council that could be considered incorrect or damaging and a financial claim is brought against the council for loss of reputation, etc. There is often a member-to-member exclusion on this insurance, so it does not tend to cover internal disputes between councillors.

Cyber: This is a fast-evolving risk, and should not be confused with having confidence in whoever supplies your IT and IT support. As a council, you risk-assess your buildings for fire, theft and so on and may fit a fire or burglar alarm; however, you still insure against fire and theft. Cyber insurance should be viewed the same way, especially with the trend towards remote working and increasing reliance on computer systems. Criminals will stop at nothing to gain access to computer systems, and attacks are many and varied. There can be a financial risk to the council itself or to third parties, along with regulatory issues and fines. Even cloud back-ups may not assist, as in the majority of cyber incidents access is gained many months before you become aware of the problem, as the criminal will watch and study before acting.

Business travel: While the liability sections of a policy will cover staff or councillors travelling to various locations, sometimes – if a council has active twinning links, for example – a proper business travel policy may be required, which covers lost luggage, medical costs, cancellations, etc. This is similar to the cover you would take out if you were getting insurance for a holiday.

Engineering inspection: Some assets may require statutory inspection, such as lifts and boilers and similar types of equipment, and play equipment will need a statutory inspection too. Insurers have historically provided an inspection service “without fear or favour”, and this can also cover damage to surrounding property due to explosion. Many councils use specialist RoSPA-approved playground inspectors to carry out the annual statutory inspection of play areas.

Motor: Vehicles used on the public highway require compulsory motor insurance. Insurance can be arranged on a fleet basis, with cover being fully comprehensive, third party fire and theft or third party only. In addition, occasional business use can be added, which will cover the private vehicles of councillors or staff if they occasionally use them for council business and this is not covered under their own insurance policies. If a vehicle such as a lawnmower is not road-registered and is used only on the council’s private land, it may still need covering under a motor policy if there is a risk of an incident being deemed a “road traffic act claim” under law.

Contract works: While existing structures are covered under the material damage part of a policy, a contract works policy may be required if an extension is being built or a major refurbishment is being undertaken. There is normally a contract between a builder and the council, which will detail insurance requirements. If using a standard Joint Contracts Tribunal (JCT) clause contract, this could require insurance in joint names between the builder and the council, but JCT clause contracts do vary. It is important to seek professional advice to ensure that the correct insurance is arranged.

Professional indemnity: As councils increase the range of services they provide, some may offer information or advice that could lead to a third party suffering a financial loss. This could fall outside the normal public liability cover, and professional indemnity insurance should be considered.

Colin Raffell, Councilguard WPS Hallam Insurance Brokers

Colin Raffell has been involved in the sector for over 10 years and heads up the local council team at WPS hallam, which has been looking after the insurance needs of local councils for over 20 years. Now part of James Hallam Insurance Brokers, it is one of the UK’s top 20 leading independent insurance brokers, and as a chartered insurance broker is committed to industry best practice. The company undertakes full risk reviews to ensure correct coverage for its clients and is committed to providing best value at all times.

Tel: 01752 670440; email: council.g@jameshallam.co.uk; web www.jameshallam.co.uk/town-council

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Written by Colin Raffell, James Hallam Councilguard
As appeared in Clerks & Councils Direct, January 2021
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