Motor traders – Are you breaking the law? Part one – Employers’ liability insurance requirements

Although insurance for car dealerships offers a clear and reliable means of defence against the risks faced by businesses such as your own, there is no legal requirement for you to hold such cover – with one very important exception.

That exception arises the moment you employ someone to help run your motor dealership. If you have any employees at all – and with only very rare exceptions – the law says that you must have employers’ liability insurance.

What is employers’ liability insurance?

As a motor dealer (like everyone else), you have a duty of care towards anyone you employ, regardless of whether they are in paid or unpaid employment by you).

This means that if any employee suffers an injury or contracts a longer-term medical condition as a result of the work they have done for you, they may hold you liable and you may then be ordered to pay a very substantial sum in compensation – in proportion to the injury or losses sustained, which may be considerable in the event of permanent injury or disability, for example.

Employers’ liability insurance indemnifies you against such claims – in other words, it helps you meet the costs awarded by any successful claim or those in defending any allegation where you are liable for the injuries or losses concerned.

Why is it a legal requirement?

The legal requirement to hold employers’ liability insurance is given effect by the Employers’ Liability (Compulsory Insurance) Act 1969, and its subsequent amendments.

The purpose of the Act is principally in defence to the rights of any employee to secure any compensation; to which he or she may be entitled as a result of an employer’s evident breach of their duty of care. Because liability insurance is required by law, any employee is assured of receiving the compensation which they are due, regardless of the financial standing or status of the employer concerned.

Under current legislation, any employer must have employers’ liability insurance, from an approved insurer – that is, one authorised and regulated by the Financial Conduct Authority (FCA) of at least £5 million. This recognises the potentially very high sums that may be awarded to any employee that is injured, or even dies, as a result of the employer’s negligence.

Indeed, the law takes this protection of employees’ right so seriously that there are stiff penalties for your failure to arrange the appropriate insurance – up to £2,500 for every day that sufficient insurance cover is absent.

Where to buy your employers’ liability insurance

Evidence suggests that there are many motor dealers who are unaware of this important legislation and who continue to employ individuals without the necessary insurance cover.

So that you do not join those companies in breaking the law – and exposing your business to the penalties that apply – you might want to consult a specialist in arranging insurance for car dealerships, such as ourselves here at Aston Scott, by calling 03300 085045, so that we can discuss ways in which we may help ensure that your legal responsibilities as an employer are adequately covered in the appropriate form of motor trade insurance.


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