Product Fundamentals: Public & Product Liability Insurance

What is Public and Product Liability Insurance?

Public liability covers your business for its legal liability to third parties, for personal injury and property damage arising from the services it performs. Product Liability on the other hand covers damage or injury caused by the products you provide to your clients.

Of course, some businesses provide both goods and services to their customers. For example, an electrical supply company might have an electrician employed by or contracted to the company to install a power point at another’s factory which later causes a fire. The cause of that fire might be the electrician’s negligent workmanship (public liability) or it might be a faulty power point that was installed (product liability). For this reason, both types of policies are often combined into a “broadform” or “general liability” policy that covers both types of risk.

Public and product liability are “occurrence” based responding on the happening of an event.  They are distinguishable to “claims made” polices which respond when the policyholder is first made aware of a claim. See our article on the fundamentals of claims made insurance here.

The "business"

The disparity in terms of affordability and availability of insurance in Northern Australia compared to the rest of the country is highlighted by the following figures:

The importance of different types of cover and the risk and premium attached to that policy will often depend on the type of business that is being undertaken. For example, a business that undertakes construction works, or sells fireworks, is likely to have a higher underwriting rate. It is important that the business activities of the policyholder are appropriately defined in the schedule of cover.
Who is covered?

Public liability policies ordinarily cover injury or damage caused by the company or its employees, including its directors and officers. Automatically it extends to the company’s liabilities for other third parties in connection with the works or the business conducted by the policyholder.

Cover is readily available that extends to indemnify third parties – such as sub-contractors (downstream) and principals (upstream) – for their own legal liability for injury and damage.

An extension of cover for subcontractors or principals (so that they have the benefit of the policy) turns ordinarily on contractual obligations that the policyholder has signed up to.  Whilst there may be cost benefits in extending cover to third parties, doing so can cause long-term cost implications – generally because those third parties being beneficiaries may cause significant losses to be paid under the policyholder’s policy.

The policyholder’s insurer in the ordinary course will have the chance to recover against third parties, but where the policyholder has agreed to cover a third party its insurer does not have that right. As such the loss history is impacted and the cost of cover is exacerbated not only by the proportion of loss paid in connection with the policyholder’s legal liability and costs, but also for the benefit of the third party.

The indemnity

The indemnity available under these policies is for legal defence costs and liability to pay compensation or damages if the policyholder was legally liable for the injury or damage subject of the complaint.

Defence costs incurred to refute liability and compensation that may be payable to a third party if liability is established can be enormous, particularly if an injury results in serious disablement and or property damage.

In the ordinary course, most contractual obligations require a minimum policy limit of $20m. That does vary by industry type and nature of principal. As regards the former, construction generally requires $50m public liability and Government infrastructure works can require up to $200m cover.

Ordinarily the limit of indemnity for public liability will be on an any one claim basis, whereas for products liability the policy limit is aggregated for all loss recoverable under the policy during the period of insurance.

What is excluded?
Generally speaking, public and product liability insurance policies do not cover:
  • Injury to you or your employees (Workers Compensation)

  • Property damage to your own property (generally covered under accidental damage under a material damage policy)

  • Illegal or deliberate behaviour

  • Faulty workmanship (though resultant damage caused by that faulty workmanship should be covered)

  • Breach of professional duty (professional indemnity)

  • Assumed liability arising solely under an express contractual term

  • Libel and slander (deliberate)

  • Damage to registered vehicles whilst on the road.

A common issue that is often overlooked is that for the policy to respond there must be legal liability (or allegations that the policyholder is legal liable) for bodily injury or property damage as a result of, or in connection with the insured services. But what if there is no bodily injury or property damage? For instance what if ostensibly the complainant advises that the products provided were not “fit for purpose” or purported to “function” in a certain way, or that representations were made and on those representations the consumer purchased the product that failed to function? Such non-functionality, performance on conformance will result in a financial loss to the complainant, but there will be no injury or damage.

Does my business require public or product liability cover?

It is prudent that your business holds public liability insurance. This being the case even in the current ever present “working remote” environment. There is not ordinarily a statutory requirement for your business to hold the cover, but in the ordinary course your contracts will impose the requirement.

Having the right insurance coverage in place that is tailored to your particular business is imperative in order to appropriately protect your business from the risks it will face during operation. Policy coverage can vary greatly in the marketplace, so understanding your exposure and therefore your coverage requirements is important and ought to be discussed with your advisor when seeking such insurance.

Claims examples
Examples of events giving rise to legal liability for the policyholder include:
  • Death or a serious injury (including emotional distress) that happened on your premises or on your worksite as a result of the works you have done or any products that you have supplied

  • Property damage, caused by the services you perform, or the products you manufacture, supply, distribute or install.

Bellrock Services

At Bellrock our role is to advise you on what insurances you will require at law, under contract and what a business of your nature / size / maturity will ordinarily hold. We act as your agents (our clients) and seek from the insurance market the most adequate, appropriate and cost effective insurance. For more information about Bellrock’s role and important notices about retaining us, please refer to our article here.

Bellrock cannot act unless we are exclusively retained to represent you in the insurance market. If you are represented in the insurance market by more than one intermediary, that may be disadvantageous to your prospects of obtaining the best possible deal. See our article on the benefits of engaging one advisor here.

For more information on Public and Product Liability Insurance or to obtain a quote, please contact us via the form below.

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