Public Liability Insurance: Businesses Must Reassess Their Risk Strategy

India is one of the fastest-growing major economies in the world, driven by the rapid expansion of its industries. While this growth fuels economic progress and creates new opportunities, it also brings increased operational complexity and risks. As a result, businesses can no longer focus solely on expansion—they must also consider the public and environmental impact of their operations and take proactive measures to mitigate these risks.

Public Liability Insurance (PLI) plays an important role in this aspect. So, if any industrial accident occurs which cases injury, property damage, or environmental harm, PLI ensures that the affected individuals receive fair and timely compensation. At the same time, it also makes sure that the concerned business remains financially protected from devastating legal and financial liabilities arising out of the crisis.

In December 2024, the government brought the Public Liability Insurance (Amendment) Rules, 2024 which introduced some key changes to the Public Liability Insurance Rules, 1991. These changes significantly increase compensation limits and corporate accountability, and apply to industries dealing with hazardous materials and processes, including manufacturing, chemicals, energy, and pharmaceuticals. Any business handling hazardous substances under the Environment (Protection) Act, 1986, must now adhere to these updated regulations.

Hence, in today’s time, it is more important than ever for businesses to reassess their risk management strategies and ensure they are adequately covered.

Public Liability Insurance is More Important Than Ever
Public Liability Insurance is designed to protect businesses from legal and financial liability. In essence, this policy protects businesses from financial setbacks which may occur when their operations cause harm to third parties. Especially when it comes to industries dealing with hazardous substances like chemicals, energy, pharmaceuticals, and manufacturing, PLI is not merely an option; but it is a necessity. After all, one single accident can lead not only to lawsuits, but also result in damage of the company’s reputation as well as financial distress.

Take the Bhopal Gas Tragedy as an example, which led to the original Public Liability Insurance Rules. In December 1984, a toxic gas leak at the Union Carbide pesticide plant in Bhopal led to the deaths of over 15,000 people over the years and left hundreds of thousands suffering from long-term health issues. The lack of immediate financial resources to compensate victims and contain the disaster exposed severe gaps in corporate liability laws at the time. As a result, the Indian government introduced the Public Liability Insurance Act, 1991, making it mandatory for companies handling hazardous substances to have liability coverage.

If a disaster of that scale were to happen today, the financial implications would be enormous. However, PLI ensures that the victims of such tragedies are failry and promptly compensated without pushing businesses towards bankruptcy.

Globally, countries like the United States and the United Kingdom have stricter liability frameworks which enforce the "polluter pays" principle, ensuring businesses bear full responsibility for damages. With the 2024 amendments, India is now moving towards a more robust liability regime.

What Has Changed?
The 2024 amendments to the PLI rules significantly increase the financial liabilities for businesses in case of industrial accidents. First and foremost, the Central Government has made provision for higher compensation limits for victims. In case of any death caused by an industrial accident, the compensation limit for the families of victims is increased 20 times from Rs 25,000 to Rs 5 lakh, with medical expenses covered up to Rs 1.5 lakh as well. The compensation limit for permanent disabilities has also been raised to Rs 5 lakh, plus medical expenses up to Rs 25,000. 

When it comes to property damage, the compensation limit has been increased over 800 times from merely Rs 6,000 to Rs 50 lakh. This, of course, depends on the extent of the damage. Moreover, under the new notified rules, the compensation limit for any other injuries would be Rs 25,000.

Apart from increased compensation for victims, the amendments have also resulted in higher liability coverage for businesses. The per accident limit for coverage has been increased 50 times — from Rs 5 crore to Rs 250 crore. In case of multiple accidents, the overall limit has been moved up to Rs 500 crore.

Here’s a quick comparison of the previous and revised compensation limits:

Beyond human casualties and property damage, PLI also provides coverage for environmental damages caused by industrial accidents like oil spills, chemical leaks and waste contamination. Under the amended rules, businesses responsible for such incidents would need sufficient liability coverage to compensate affected parties. So if any industry is invovled in an oil spill or chemical leak, or it discharges untreated waste into rivers and landfills, they would be held liable for large-scale environmental restoration efforts.

What Should Businesses Do?
It is true that these amendments have made the compensation process fairer and more in tune with today’s realities, but they also bring new challenges for businesses. Now, all businesses, especially in sectors that involve higher risk, would need to reassess their risk management strategies. They should consult with insurers and brokers to upgrade their policies and bring their liability insurance up to the standards of the strengthened regulatory standards.

For example, if a pharmaceutical company is currently insured for Rs 10 crore but is now liable for up to Rs 250 crore per accident, it faces a huge financial risk in the event of a major accident. Without updating its insurance, the business may not be able to cover compensation costs, which could severely impact its financial stability.

Apart from undertaking detailed risk assessments to accurately determine their exposure to liabilities, companies must also invest in preventive measures to counter associated risks. For example, they can enhance workplace safety measures to minimize the risk of accidents. Periodic audits can help identify potential hazards and correct them before they turn into major liabilities. 

The author is Business Head - Liability, Cyber & Financial Risk, Policybazaar for Business