On 1 April 2024, the Indian government introduced significant amendments to the Public Liability Insurance Act (PLIA) through the Jan Vishwas Act, followed by further amendments to the Rules on 17 December 2024. These changes have substantially increased insurance coverage limits and compensation payouts, marking a major shift in India's public liability insurance framework. The amendments aim to strengthen protections for victims of industrial accidents by ensuring greater financial preparedness among businesses handling hazardous substances. This is particularly relevant in the wake of past disasters, the most infamous being the Bhopal gas tragedy of 1984 which underscored the urgent need for such legislation.
The date, 3 December 1984, will forever be recorded in the annals of history as the blackest day ever when it comes to industrial accidents. On that fateful day just after midnight, around 45 tonnes of the dangerous gas methyl isocyanate escaped from an insecticide plant that was owned by the Indian subsidiary of the American firm Union Carbide Corporation. The gas drifted over the densely populated neighbourhoods around the plant, killing approximately 3,000 people immediately and more than 15,000 in the next few days, creating panic as tens of thousands of others attempted to flee Bhopal. The final death toll was estimated to be between 15,000 and 20,000. Some half a million survivors suffered respiratory problems, eye irritation or blindness and other maladies, resulting from exposure to the toxic gas.
Of such severe magnitude was the overall impact of this industrial disaster, that it was decided to enact statutory legislation that provided immediate relief to the victims from the industry owners using the State machinery already in place. From such noble intention was the PLIA passed in 1991 after much deliberation between the lawmakers and the general insurance industry.
The basic tenet of the Act is that all owners of units handling hazardous substances are mandated to give immediate relief to third-party victims who have suffered either bodily injury, death or property damage on account of industrial accidents arising out of their operations, as per the schedule (see the table below) attached to the Act. With a view to ensure the financial capability of the owners to pay such compensation, they were directed to incept a public liability insurance policy. Further, through the Rules of the Act, the maximum limits of such Insurance were pegged at Rs5 crore as the limit per accident and Rs15 crore as the limit per policy year to accommodate up to three accidents in a year.
It was soon realised that these limits would not be adequate if there was a serious industrial disaster and a kind of excess protection (similar to top-up insurance in health insurance, where when the base limits are exhausted the top-up policy pays up to its own limits) will be needed over every PLIA policy so that even in a worst-case scenario like Bhopal, the victims would still get the compensation stipulated under the law. This led to the establishment of the environment relief fund (ERF) with the following important objectives:
a) The ERF would be created by asking every owner to pay an equivalent premium amount as a contribution to the ERF and he would be then given an equivalent excess limit on the limits of his PLIA policy.
b) If the compensation payable under PLIA policy exceeded both—viz., the policy limit per accident and the excess limit allowed under ERF, then the balance liability would revert to the owner, now payable from his end.
In 2024, there were sweeping amendments to the Act through Sr. No. 28 of the Jan Vishwas Act notified on 1 April 2024 and the Rules thereof through amendments notified on 17 December 2024, substantially increasing both the limits of insurance and the compensations paid hitherto. Refer to the table below.
The limits of insurance under the PLIA have also gone up substantially, see the table below.
These dramatic increases have pushed Indian liability insurers back to the drawing board, putting under a lens, not only the premiums, but the complete underwriting of the new risk exposures created by the amendments. Therefore, whilst statutory compensation under PLIA is not a new concept in India for Indian insurers, the policy limits and the premiums charged for the same policies post these amendments will have to be revised upwards considerably to account for the increased magnitudes of the potential claims.
The impact of these amendments needs to be studied from the perspectives of the three main constituents of the Public Liability Act insurance: The Insurers, the insureds and the ERF.
The Insurers
Apart from the inevitable increase in the premiums that insurers will push for, there is one silver lining, of course, which is that since the liability arising under the PLIA is a statutory liability, there will be no claim for defence costs which should be a major relief in this class of business unlike other liability classes of business!
Another cause of concern for the insurers may well be that the increased new limits under statutory PLIA, may lead to a significant decline in the purchase of the common law public liability insurance now given under commercial general liability policies or stand-alone public liability policies.
This may not have an impact on the following:
Establishments which do not fall under the purview of the owners handling hazardous substances.
Contractually mandated policies that many of the business owners need to take in compliance with their overseas customers requirements.
In any case, the insurers would do well to remember that Clause 8(2) is still retained under the PLI Act reproduced hereunder:
"Notwithstanding anything contained in sub-section (1), where in respect of death of, or injury to, any person or damage to any property, the owner, liable to give claim for relief, is also liable to pay compensation under any other law, the amount of such compensation shall be reduced by the amount of relief paid under this Act."
This effectively means that should an insured opt for both policies – the statutory and the common law CGL/ public liability industrial, the latter will automatically have a very high deductible in terms of statutory compensation awarded under the Act. This should entitle the insured to a substantial discount in the annual premiums chargeable under the common law policies for the same insured and will go a long way towards reducing the premium burdens that these amendments are sure to bring.
The Insureds
The new limits of insurance have been pegged to the paid-up capitals of the owners handling hazardous substances which have hardly been determined keeping the criteria of the risk factors of the entity's hazardous operations. Corporate buyers of insurance will do well to re-examine the suitability of their new limits of indemnity against the new compensation schedules and determine whether they need to augment their limits or choose a lower excess limit, provided the insurance industry and lawmakers permit them to do so.
It is quite possible that some insureds having a highly hazardous footprint may have a small paid-up capital, in which case their limit of indemnity per accident and the equivalent excess limit which accrues to them from the ERF may prove inadequate if the accident triggering claim under both is severe. We trust that these owners shall be permitted to avail of either the maximum limits and/ or excess protection over 2x the limits (one from the policy and another equivalent limit from the ERF) so that they have a risk commensurate insurance cover.
On the other hand, you may have insureds who have large paid-up capitals, close to the maximum permissible limits, who may actually appreciate the flexibility of choosing lower excess limits from the ERF and paying not the full premium but an amount in the same proportion as the limit chosen.
What may be a cause for concern for the insureds will be the newly introduced Section 5A of the Rules gazetted on 17 December 2024, reproduced as follows,
"In case any accident occurs in any industrial unit, the industrial unit shall publicise among the affected persons regarding their right to claim for relief under the Act and these rules."
This adds an uncomfortable dimension on the insured's corporate compliance responsibility of not just paying compensation but also inviting claims from affected members of the public.
The ERF
With continuous contributions and investment income over the Past 30 years, it is estimated that the ERF today could have a corpus in the range of Rs950 crore to Rs1,000 crore or more. However, we must remember that the premiums and the equivalent contributions to the ERF were in the thousands so far.
The expected increases in premiums charged for the statutory PLI policy will also drive the ERF contributions north which will be further augmented by the amendments imposing steep fines (twice the annual premium) for non-compliance with the Act provisions and directions, all of which will considerably add to the corpus of the ERF.
However, in the new regime, there are a few provisions which can have the effect of depleting the ERF corpus as follows:
As mentioned earlier in the article, the ERF scheme was set up to provide an excess identical limit by collecting an equivalent premium and this was quite alright when the limits of indemnity were low, the premiums were low, and the compensations were low. 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 worse-case scenario, if the policy limits are depleted, the ERF will be called upon to pay up to another Rs100 crore!
Another eventuality, which can cause substantial erosion of the ERF, is the introduction of a new section 3A in the Rules which empowers the central or the state pollution control board (as the case may be) to apply to the Central government for allocation of funds (not exceeding 10% of the fund) for restoration of environmentally damaged public property.
An amendment which would have been welcomed along with these amendments, which is also now long overdue and seriously needed, is to have widened the scope of the PLIA to apply to all businesses who have a public interface rather than being restricted only to units handling hazardous substances. Cases in point have been the Morbi bridge disaster, the Tirumala stampede, the Ghatkopar hoarding crash; these have all occurred in places which would not fall under the definition of owner handling hazardous substances and therefore would have no public liability insurance but have caused serious tragedies resulting in loss of lives and grievous injuries to third parties. Will the government continue to dip into the national exchequer to compensate these victims? There was an opportunity here to fix this glaring lacuna; unfortunately, it seems to be an opportunity lost for now.
(The views expressed in the article are the author's personal views)
(Uttara Vaid has over 30 years of experience in the insurance industry and is the founder of Uttara Vaid Advisory Services LLP. She also authored a research study for Moneylife Foundation on Public Liability Insurance in India which was launched in 2023 and can be accessed here).
separate demand on this is submitted to Office of President, PMO, Law Minister.
4 MPs of Karnataka were updated twice on this issue,still no response received. last paragraph of this article is perfectly sums up the urgent need for Expansion of Mandatory Public Liability Act coverage to all public gatherings, events. Even the fall of MLA from Stage in a sports event in Kerala, Fire crackers disasters, trampling by elephants in religious events, still not opened eyes of administrative system.
The efforts of Association of Upahar Tragedy Victims still not addressed by central govt.????