Diwali festivity across the country came to an abrupt halt with the news that over 132 people had died when a suspension bridge in Morbi across the Machchhu river snapped. Shock gave way to disbelief and intense indignation as various facts unfolded, especially about the Oreva group’s 15-year contract for a complete overhaul, renovation, operation and maintenance of the bridge.
The details reported by the media were even more shocking:
- The Oreva group, traditionally a clock and electronic appliance manufacturer, was surprisingly awarded the contract, despite having little experience renovating or maintaining a historic suspension bridge. Yet, it 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 had a clause that ensured ‘no interference’ from government or state agencies in maintenance or administrative tasks related to the bridge.
- The renovation job was to be completed by December 2022, but the bridge was opened to the public almost a month earlier, presumably to cash in on the festive holiday. This was done without the mandatory fitness certificate and permission from the civic authorities.
- When the bridge could safely accommodate only 100 people at a time, the company is understood to have sold anywhere between 400 to a staggering 700 unnumbered tickets. This is clear from photos and videos of the large crowd on the bridge that fateful day.
Although many details are still being unravelled, one thing is conspicuous by its absence. It is the complete silence in all media reports about the Oreva group having robust Public Liability Insurance (PLI) to cover such contingencies. The Oreva group ought to have had such insurance, either as a contractual mandate or as a risk management tool.
What Exactly Is PLI and Why Is It Relevant to the Morbi Tragedy?
Public liability insurance is a policy designed to reimburse a business enterprise if it is called upon to pay compensation to members of the public or innocent third parties in the case of death, bodily injury or property damage due to a business enterprise’s premises or its operations.
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 the legal expenses for defending itself against such action.
Whilst this is the construct of a general public liability insurance (GPLI), India also has a Public Liability Insurance Act 1991 in force which mandates that all owners of units handling hazardous substances must incept a public liability insurance policy to compensate victims of industrial accidents. However, this Act does not apply to many public places which do not handle hazardous substances as defined under the Act. Therefore, statutory PLI is not an unknown concept in India; it is just not mandatory for all enterprises.
The enormous human tragedy at Bhopal due to a gas leak from the Union Carbide factory in 1984 focused attention on the urgent need for social welfare legislation to ensure timely compensation to victims of industrial accidents. Such victims are usually unaware of the law nor have the financial wherewithal to pursue long and tenuous litigation against powerful corporate behemoths.
The Act laid out a framework whereby the district collectors can initiate suo motu action in case of industrial accidents in their jurisdiction. They are empowered to invite applications for relief from affected parties, draw up a list of such applicants and other victims and disburse compensations within a stipulated period by asking the enterprise or industrial unit responsible for the problem to deposit the money.
The jury is still out over whether this Act has achieved its lofty objectives and if compensation and related issues are adequate enough. While the adequacy of the PLI Act can be debated, it is abundantly clear that a socially relevant legislation mandating public liability cover is required in all public places such as restaurants, malls, religious congregations, festivals, tourist attractions and even cinemas and theatres.
Whether it is the Uphaar cinema fire tragedy in Delhi, the devastating fire that broke out in Kamala Mills, Mumbai or the Morbi disaster, these accident victims are no different from those who have suffered devastating industrial accidents and they are similarly disadvantaged.
The average Indian, even in his grief, tends to be fatalistic and a believer in Karma, rather than fight for his rights and demand that rightful compensation be promptly and graciously disbursed. Compensation does not lessen the grief, or misery but is a kind of monetary apology from the enterprise where the accident occurred and often helps mitigate basic financial needs, loss of pay or, in many cases, the consequences of losing a bread earner.
Opponents of compulsory legislation will frown at the suggestion, but it is the need of the hour because several aspects of the claims process are unclear and need proper iteration and statutorily mandated processes.
This is important because:
- The law of torts is not very well developed in India.
- There is very little legal awareness on the part of business and entrepreneurs that they owe a duty of care to their customers who may be hurt or injured on their premises or due to their operations. They are obliged to ensure immediate medical attention in case of bodily harm and compensate them for any property damage.
- The lack of awareness on the part of the business is exacerbated by a corresponding lack of legal awareness on the part of victims. Moreover, a victim needs the assurance of a clear framework that allows easy filing of claims and timely payout.
- A proper legal framework would also lay down the process of fixing accountability and responsibility on the business owner to pay compensation, rather than the present knee-jerk reaction where politicians announce an ex-gratia payment by dipping into the national or state exchequer, primarily to appease victims and cool public anger. We hear numerous reports about how the poor and less literate struggle to get the promised compensation without clear laws.
- An indirect benefit of mandating insurance is that most responsible insurers will prevail upon businesses and industry to put proper safety mechanisms in place to avoid the accumulation of bad risks in their books. A good example is how insistence by insurers ensures proper compliance with 'Conditions Paramount' in the property insurance policies of petrochemicals complexes, failing which the insurance industry may refuse to grant cover. This insistence has long been credited with ensuring their inherent safety.
It must be pointed out that any legislation that does not address the many lacunae in the implementation of the Public Liability Act (PLIA) in its present form will not achieve the desired results. Making PLIA mandatory without these steps would only add to the friction of doing business and meet with predictable opposition.
The changes outlined below are required to ensure that the objective of the Act is fulfilled, in letter as well as spirit:
- The Act has given district collectors the responsibility as well as the power to initiate suo motu action. They are often found lacking in procedural and substantive knowledge about the law leading to needless delays in the aftermath of a disaster. Information and training about the law need to be part of their early training.
- There is a need for an urgent revision in the initial compensation stipulated under the Act. Today, it is Rs25,000 for death claims, Rs12,500 for medical expenses reimbursement, and Rs6,000 for property damage. These amounts were fixed way back in 1991, and were not intended to extinguish all liability claims but provide immediate relief. Unfortunately, there is little understanding of the intent behind these amounts, even among insurance experts. It is often assumed that this is the total compensation. It is time for compensation under PLIA to be brought on par with that for motor and railway accidents. Victims should also be allowed to pursue the case and prove a higher entitlement under the law.
- All contracts for infrastructure projects, whether on build, own-operate (BOO) and permutations that include transfer and maintenance, including those for repair and renovation of existing infrastructure, must make it mandatory for the contractor, builder or awardee to obtain a sufficiently large public liability and professional indemnity insurance for the entire duration of the project.
- The general insurance industry is aware that most if not all, projects for the construction of the Metro rail across India uniformly have mandates for both public liability and professional indemnity insurance. This is a universal best practice adopted by developed countries across the world. The government cannot be selective in the implementation of these best practices in select pockets or where it employs large foreign contractors for sophisticated tunnelling who, in any case, will not work without such an insurance cover.
- Claims handling must be quick and impartial. In the case of motor accidents, where the motor accident claims tribunal (MACT) demands the submission of compulsory third-party insurance of the vehicle from the owner, after which the entire claim process is handled by the vehicle insurer, independent of the owner. A similar claims-handling system has to be set up for PLI because the key to its success lies in the ease of making claims and receiving compensation.
General insurance companies have well-defined expertise in handling retail claims for compensation, whether it is motor accidents or health insurance. A push in the right direction from legislators could see similar expertise being developed for public accidents and liability insurance policies covering them.
These are steps in the right direction and very necessary in a country like ours, where the next disaster is round the corner and, indeed, how many more tragedies are needed before we wake up to the need to mandate comprehensive PLI 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 malls?
(Uttara Vaid has over 30 years of experience in the insurance industry and is the founder of Uttara Vaid Advisory Services LLP.)