Public liability insurance covers your business for losses or damage to a third party as a result of your business’ activities. Failure in obtaining public liability insurance policy can expose a business to a range of risks.
As a business, you will inevitably have interactions with customers and third parties that will pass through the premises or use a good or service you sell. From occupational health and safety to Australian Consumer Law, businesses are responsible for ensuring the safety of third parties that engage with the business. However, businesses cannot foresee every instance of injury and damage that might befall them nor can they have oversight over every product defect that might arise.
In these instances, public liability insurance serves to offers some protection against the costs associated with any claims brought against your business and as such is advisable to have public liability insurance.
Legal Requirement for Public Liability Insurance
Although public liability insurance is not a statutory requirement, most small to medium sized businesses do take out this insurance to protect any damage caused to a person or their property. Particularly with businesses that interact with public space (construction, parks etc.), or welcome visitors and sub-contractors should check to see whether there is public liability insurance is in place first. In the trades industry, there may also be clauses in contracts stipulating the need for public liability insurance.
While there is no statutory requirement, your business should be covered by public liability insurance in the following circumstances:
- The general public can visit your premises (including delivery personnel and customers, even if you have a home-based business); and
- Your business hosts off-site events that can be attended by the general public.
A public liability insurance policy should include the scope of your business and any associated entities. This type of policy usually covers members of the public, suppliers and the wider community. It may also cover employees, including any directors and partners.
In the event that someone sustains an injury at the business as a result of negligence, the business may be held liable. A court will examine a number of factors, including:
- The probability and likely seriousness of the harm occurring if care was not taken;
- The burden of taking precautions to avoid the risk of harm; and
- The social utility of the activity that creates the risk of harm.
In the circumstances that the business did not have public liability insurance and are found at fault, the resulting compensation payouts, court fees and legal costs can potentially cripple a business as they are paid out of pocket.
Type and Level of Public Liability Insurance
As with other forms of insurance, the level of cover required varies dependent on the risk assessment of a business’ activities. Naturally, a business in a labour heavy industry is likely going to need greater protection than that of an office environment. Even as a small business, the products you sell and the facilities you maintain still carry a degree of risk and should have a public liability policy of some nature.
What Does Public Liability Insurance Cover?
Broadly, public liability insurance covers loss or damage to property, injury or death and other negligent acts. More specifically, the types of damages it hedges against are:
- Pain and Suffering;
- Economic Loss;
- Non-Economic Loss;
- Loss of Future Income/Part Loss of Income;
- Medical rehabilitation; and
- Living assistance.
It also provides for the associated costs involved with claims assessment, administration and investigation and is commonly bundled with the other packages, often product liability insurance.
However, public liability insurance offers no protection when the claim relates to:
- Workers Compensation;
- Product Recall; or
- Punitive Damages.
However, this is only a basic list as to what public liability insurance covers and a policy should be tailored to a business’ needs based on the risk areas identified in consultation with an insurance broker.
Public liability insurance is a pre-requisite part of a business’ risk management policy. While not compulsory, the risks of not having public liability insurance are significant, including potential for significant out of pocket expenses, expensive legal bills and difficulty in obtaining work. The ongoing costs of a public liability insurance policy outweigh those of potential claims that can be filed against a business.