The real nature of negligence insurance is a cause of conflict in both small and large companies. Considered a part of liability insurance or which is more popular as Errors and Omissions (E&O), negligence insurance are applied for by companies to pay off any damage done by employees. The scope and limitations of negligence, however, is not completely cleared.
Negligence is technically defined as the failure to exercise care and precautions, completely ignoring the warning signs in certain delicate circumstances. For instance, an intoxicated pilot who is permitted to operate a plane full of passengers and causes a plane crash can be a negligence liability for the company. Negligence insurance assists the company in paying off the damage and compensating the grieving families.
In some instances, gross negligence can occur.
The airline company may have known that the pilot is intoxicated or that the steward is aware of the pilot’s state but still permitted him to take the wheel, thus causing deaths of all the passengers on board. The company can be filed with gross negligence. Insurance companies normally cover mere negligence but gross negligence can be hard to cover.
Negligence insurance is also sometimes confused with Willful Misconduct.
Gross negligence and willful misconduct are related concepts, but are not always the same thing. An insurance policy may specifically state that acts of negligence are covered but acts of gross negligence are not, or it may state that acts of negligence are covered but acts of willful misconduct are not. It is the call of the insurance company to counter the complaints of the company of negligence by filing willful misconduct.
From the term itself, willful misconduct is defined as a voluntary act of malice which leads to accidents and liabilities. Many companies would try to file claim on negligence insurance which are willingly done.
One famous instance is when in 2008, a notary company in West Jakarta in Indonesia was filed with willful misconduct when the company attested to have no record of mortgage documents or records without conducting a proper search in the municipality’s Land Registry.
Distinguishing misconduct from negligence require a long and tedious process, sometimes even involving the court. For an action to be considered misconduct as opposed to negligence, it must be a deliberate decision to do something known to cause harm. Mere recklessness, even on the extreme, can usually be considered gross negligence rather than willful misconduct.