Insurance and The Law

This is an ominous sounding title. The Law though affects everyone who runs or works in a business. Many of us may go about our business each day and never realise the implications and repercussions of even simple actions. Like doing pest control work. If something does go wrong, it may put you out of business. Or worse still....cost you your home!

IN THE BEGINNING

The use of the Law has been around since about 300BC. Law itself originates in rules which have regulated various cultures since the dawn of civilization. Basically people living together in communities have always, at some time or other, come into conflict with each other. So it has been necessary to have someone who is independent and wise "judge" who was right or wrong. Originally these people were tribal elders. Now we call them Judges.

These people would "hear" the disagreement, and at the end make a decision called a "judgment". These judgments eventually became the Law. They form the basis of what we now call Common Law.

Common Law also formed the basis of Substantive Law. This is the Law of Contracts, Torts (laws concerned with civil injuries and their remedy), Defamation (Libel and slander) and so on. Common Law formed the basis for Governments and Government authorities too. But then Governments added their own statutes, regulations, bye-laws, etc. By doing this they either changed or added to the Common Law. Examples of these changes and additions that affect you as a pest controller are Consumer Protection Laws and Unfair Competition.

All this means that it is not possible to get a ready made or simple, clear cut answer with all these Laws. So the smart response is always to hire a reputable Solicitor to help you find an answer if you have a problem.

CONTRACT LAW

As soon as a Contract is entered into, a Law can be enforced to ensure that

the terms of the Contract are fulfilled and adhered to. Quite simply a Contract is an agreement between two or more parties. It can be made in writing, or be verbal, which means that no written document exists.

Both the written and verbal Contract must be supported by a consideration. This means something must be given in return for something promised. So you will do a professional pest control treatment (the promise) in return for a financial reward (the consideration). To complete the Contract there also needs to be the acceptance by both parties. This is ideally confirmed by both parties signing the document.

The most important aspect of the Contract is that it gives rise to certain obligations. If the obligations are not adhered to, then they can be enforced by Law. You will therefore be expected to provide a professional treatment and, for example, rid the property of termites. Your client will be expected to pay you for the treatment.

Many of your Contracts as a pest inspector are established on a verbal basis. Someone calls you up and you agree to perform a treatment. You advise your fee and they accept your offer. Thus all the elements of a Contract are in place: The offer or promise, the consideration and the acceptance between two parties.

You should always be careful with verbal Contracts though because if there is ever a dispute, it is difficult to prove and substantiate. You've probably heard the quip "A verbal Contract is not worth the paper it's written on." Always try to confirm a verbal Contract in writing. And get the other party to sign it. You can do this when you turn up to do the treatment.

When you have completed your treatment your client, hopefully, promptly pays for it. The Contract is now said to be discharged. This doesn't mean though that you can completely forget about the treatment. If at some time in the future someone finds a problem, perhaps the termites have returned, they can still take action. You are not discharged from your promise until all elements are complete. If you offer any type of a warranty then you must abide by this warranty.

Damages are normally awarded if you're found to have breached the Contract. These are usually estimated as the amount of the actual loss, including general damages which are presumed to arise from the particular wrong. In the case of termites returning and causing damage, these general damages are likely to include the cost of the timber damage and may include emotional stress and suffering, cost of alternative accommodation, etc.

THE LAW OF TORT

The Law of Tort is one of the most important that impacts upon you as a professional pest controller. One definition of a tort is "an injury (civil wrong) other than a Breach of Contract which the Law will redress with damages."

The same events may rise to both a Breach of Contract and a Tort. If you perform a termite treatment and the termites return, you may have Breached your Contract, as we discussed earlier, but you may also have committed the Tort of Negligence.

First it must be established that damage was done e.g. termites caused some damage and your client has suffered a loss because of that damage. Or, through your actions you injured someone or damaged something. Then it has to be proven that there is a link (connection) between the wrong done and the damage done. If the connection can't be proven, then there is no Civil Wrong. It is of vital importance that the connection is shown.

This is why it is vital that you provide your client with a very detailed and complete quotation of all that you find, what you couldn't inspect and why you couldn't inspect it, WHAT YOU ARE GOING TO DO and WHAT THEY ARE GETTING FOR THEIR MONEY.

Negligence is basically where you omit to do something which a reasonable, professional pest controller, guided by those considerations which ordinarily regulate the conduct of a pest controller would do; or doing something which a reasonable or prudent professional pest controller would not do.

The Tort of Negligence is the most commonly used form of civil action today. The foundation of the Tort of Negligence is the absence of reasonable conduct. To succeed in an action the plaintiff must show 1) you owed them a Duty of Care; and 2) you breached that Duty of Care; and 3) that they suffered damage because of that failure; and 4) that the damage was not too remote from your negligence.

It is well established through Common Law Precedents, that as a provider of professional advice, you have a Duty of Care to your customer.

As we mentioned above, the Breach of Duty of Care is the failure to provide a pest control treatment to a reasonable standard. Or the failure to perform the treatment in a safe and reasonable manner. You have a Duty of Care not to cause damage to the property (or anybody in the property when you do your treatment).

This means that if there is an Australian Standard, a Code of Best Practice; or a similar Industry Standard /Practice in place, you should follow it. Also it means, if the plaintiff shows that most other pest controllers do something that you don't, then you may be considered negligent in your duty.

This is because the courts will judge things on how a reasonable professional pest inspector would act. And it would be reasonable to expect him to follow an Australian Standard or recognized best industry practice.

FREE ADVICE CAN COST A MINT!

There was formerly no general remedy for damage caused as a result of negligent advice or information apart from that relating to professional persons based upon a contract.

Consider these two situations: Case 1.

Mr. and Mrs. Citizen contract Grasshopper Pest Inspections to perform a Timber Pest Property Inspection. Grasshopper Pest Inspections provides negligent advice on the extent of termite damage to the property. Mr. and Mrs. Citizen, who have relied on the advice, lose money because they have to repair the termite damage they weren't told about and suffer a lot of stress because the damage was quite extensive.

Mr. and Mrs. Citizen can sue Grasshopper Pest Inspections for Breach of Contract. Grasshopper Pest Inspections has failed to provide a reasonable and proper pest inspection of the premises; and failed to provide a pest report that was in accordance with the plaintiffs' purpose. Mr. and Mrs. Citizen can also sue Grasshopper Pest Inspections under the Tort of Negligence because the Common Law has long recognized a breach of the Duty of Care upon a contract.

Case 2.

Grasshopper Pest Inspections gives Mr. Johnson some professional advice FREE of charge. The advice is given carelessly. Grasshopper Pest Inspections didn't do a full inspection, they just "checked out the sub-floor" as part of a sales promotion. As a consequence of this advice Mr. Johnson subsequently suffers a loss since it turns out it was a cavity wall house with inadequate termite caps. So the termites has gone up the cavity and seriously damaged the roof.

(This could equally apply if perhaps you did an inspection for a friend or neighbour as a gesture of goodwill).

The original Common Law view was that Mr. Johnson had no remedy in Tort. It was held that in the absence of a contract, there was no action for negligent statements in the absence fraud. The position has now changed. The Court has now held that there is an action for negligent misstatements (misrepresentations) where there is a reasonable reliance on the statements, even though there was no contract, where "a reasonable man (knew) that he was being trusted or that his skill and judgment were being relied upon."

WHAT INSURANCE DO I NEED?

It is a very ill informed and foolish person who conducts a pest control business and/or pest inspection business without being insured. If you are sued, then it could be very costly indeed. A claim for injuring another person might take millions of dollars to settle. A claim for missed termite damage could easily run into hundreds of thousands of dollars. There are several cases before the courts now which amount to $250,000 plus. Not many businesses can afford that and survive.

You may feel that if you are a proprietary limited company your own personal assets are safe. And since the assets of the business might be fairly limited, its not worth worrying about insurance. You'll just wind the business up if you get sued.

Unfortunately the courts are very aware of this situation and changes to the law now allow judges to remove the "veil of corporate security" and place the directors assets directly on the line. So if you're not insured you could lose your home, your car, everything. If you're a sole trader or a partnership then your personal assets are always directly exposed.

So, what cover do you need for doing inspections?

PUBLIC/GENERAL LIABILITY INSURANCE

This is sometimes referred to as Broadform Liability cover. Essentially it covers you if you accidentally injure another person who doesn't work for you, or if you accidentally damage the property you are inspecting or treating.

We looked at the Law of Tort in relationship to negligence. Some items of negligence are covered under Liability insurance and some under Professional Indemnity that we'll look at next.

In the case of, say a torch being dropped out of a manhole and landing on someone's head, we are looking at a Liability claim. Through your negligence you accidentally injured someone else. Other examples of Liability claims could be knocking over and breaking an expensive vase or ornament, falling through the roof void, someone having an allergic reaction to the chemical you used, etc.

The real need for such insurance is in the event of you accidentally injuring a person. This could happen in many ways. Of course it very rarely happens, but when it does, claims are very high indeed. So how much cover is needed?

If you look at your home insurance policy you'll see that you most likely have $2 million to $5 million of public liability cover included. Now that is for if someone injures themselves in your house. Clearly, if you are running a pest control business your need for cover is greater.

The reason for needing high levels of cover is because personal injury claims are being settled in the courts for millions of dollars now. You also have to consider that in the event of such a claim, rare though it may be, it will probably take several years to settle it. During which time, settlement costs will have risen still further.

You should as a minimum carry $5 - 10 million of Public/General Liability Insurance cover for your business.

PROFESSIONAL INDEMNITY INSURANCE

This is essential too. Sometimes it is called errors and omissions cover. What it means is that if you make a professional error, or you are professionally negligent, the insurance company will have to pay out, in the case of damage being realized as a consequence of your negligence.

So, in the event of you failing to find termites you would be protected, if you comply with your policy requirements. But look closely at your policy. Some professional indemnity policies only cover you for written reports. So if you give any verbal advice, you are not protected.

If you do termite treatments and the termites return, this would be a professional indemnity claim. This is one of the most common types of claims nowadays.

How much Professional Indemnity cover is needed? You need to be sure the cover is sufficient to protect you in the event of more than one claim being settled in a year. You may have one claim this year, and another in a couple of years time. If they both settle in the same year though, will you have enough cover? (We've even known one company who went 26 years without a claim and then had two within a month).

Given that you are trying to protect yourself against the worst case scenario, so your business and assets are fully protected, you should carry a minimum of $500,000 of professional indemnity cover.

THINGS TO LOOK FOR WHEN CHOOSING AN INSURER

How long has the insurer been looking after pest controllers? Since it is a high risk industry, many insurers come in and then leave after a couple of years. This can then leave you uninsured and may make it difficult to reinsure.

How many pest controllers do they ensure? At the end of the day, insurance companies need to make money. So if the premiums coming in, are less than the cost of the claims being paid out, you will find they pull out of the market. Again, since pest control is high risk, you need an insurer who has a sufficiently large client base to weather a few claims.

Just what does the policy cover you for? This is the most important aspect of all. Make sure you read the policy and that it covers all your needs. Policy documents are often lengthy, but you must read it and the schedule which is normally attached to it. If you don't understand something, then phone up and get it explained to you.

Who is the underwriter? Is the underwriter, the actual company issuing the policy, a reputable company, registered with the Australian Insurance Commissioner? If it's an overseas company they may not be registered, and then you have no way of knowing how secure your policy is. If you have a dispute with them you would have to take it up in an overseas court. This is beyond the means of most people. So always look for an Australian registered insurer.

What other support will they give you? It's a risky business and you need to keep abreast with what is happening and changes to the law as they affect you. Do they have a newsletter that keeps you up to date with items of interest and ways to protect your business? What about if you have a problem? Do they have people who know your industry, to whom you can turn to for advice?

What happens if you make a claim? Ask them how they handle claims. Who gets involved in handling claims? Is it someone who understands pest control and the biology of timber pests? This can be important to you. Otherwise with small claims, they may choose to just settle them when there is no real need to. The problem is, you have to pay your excess too. This is usually at least $1,500.

What happens if the claim is below your excess? Most companies won't handle a claim below the excess. This will leave you on your own. Do you know how to issue a Deed of Release? If you don't, and your insurer won't help you, then you'll need to engage a solicitor.

Provided by Rapid Solutions. For further information on any issues raised by this article, or to arrange secure insurance protection for your business, please call Rapid Solutions directly on 02-49543655