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Guide to business liability insurance in Australia

What is liability?

In insurance terms, “liability” could be defined as the state of being liable or legally responsible for something that happens due to your actions or omissions or those of someone you are responsible for. You would be considered liable if it could be proven in a court that you or your representative(s) were the direct cause of the plaintiff’s loss.

What is business liability insurance?

Liability insurance protects you from that liability, whether it relates to your property, your actions or a product or service you provide to the public. It offers protection from two forms of financial loss if you are found liable:

  • The legal costs of defending the claim plus the claimant’s legal costs
  • Any financial compensation you are required to pay them

Liability insurance is an important type of cover to have for any business or business professional who provides products or services to the public, and it is even compulsory for some professionals such as medical practitioners.

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What types of business liability insurance covers are there?

There are a range of different types of liability insurance, including employers liability insurance (workers compensation) and directors and officers liability insurance (for companies). The three main types of liability insurance are:

Public liability insurance vs Product liability insurance

A question we often get from users is asking the difference between public liability and product liability. We'll cover the two in more detail below but here's a general guide:

Example liability:
  • A customer slipping on your premises
  • As a baker your food is accidentally contaminated and a customer gets food poisoning
1. Public liability insurance
  • Covered
  • -
2. Product liability insurance
  • -
  • Covered

What is the difference between the three types of cover?

The three of these are easy to get confused because they all protect you from lawsuits where people are suing you for harming them and/or their property. The difference lies in how you allegedly harmed them. Here's how they differ:

  • Public liability. This protects you when the damage is unrelated to your professional service or when you provided a service that caused damage that you couldn't have expected (ie, you weren't reckless). Example: You own a massage parlour and a client slips and falls in your building.
  • Product liability. This is a subset of public liability insurance, and it comes into play when you sell someone a product that ultimately does the damage. Example: As a masseuse, you sell someone some lotion that damages their skin after they've applied it at home.
  • Professional indemnity. This will come to your aid when you've provided a faulty professional service due to negligence or recklessness. The damage can include injury, property damage, financial losses and even emotional trauma. Example: As a masseuse, you damage someone's ligament by stretching them inappropriately.

Do I need all three?

This is dependant on your business, and the types of risks it's exposed to. If you are unsure, speak to a broker.

1. Public liability insurance

Public liability insurance covers you if you are found to be liable for the death or injury of a third party or the loss or damage of their property due to negligence on your part when you work in public

What is negligence?

Negligence is defined as failing to take due care to avoid causing injury or loss to someone else. For negligence to be proven in court, it must be established firstly that there was a duty of care, and secondly that it was breached. The plaintiff must also be shown to have suffered an injury or loss and that the injury or loss was caused by the breach of duty.

Is public liability insurance compulsory?

If you own a business, public liability insurance is a necessary form of cover and while not compulsory, it should be taken out as a matter of course due to the crippling financial losses that could result from a successful public liability claim (we’re talking millions of dollars).

Do I need public liability cover for events?

Public liability insurance is also recommended for anyone responsible for holding any sort of public event and it is often a compulsory requirement of doing so, which is regulated through a licensing authority.

2. Product liability

Product liability insurance covers your liability for any injury, damage or loss suffered by a third party as a result of a product that you manufacture or sell to the public.

I thought this is general liability insurance?

Also referred to as general liability insurance, it is often included as part of a public liability insurance policy and is important to have if you provide products to the public. That’s because claims due to product failure can be extremely expensive even if unfounded due to the considerable legal defence costs often involved.

What types of products are covered?

Different types of product liability insurance are designed to protect against the failure of different types of products, and typical examples include protection from liability for damage caused by software, injury caused by equipment and illness caused by food or beverages.

3. Professional indemnity insurance

Professional indemnity insurance covers your liability for a loss suffered by a third party as a result of a service or advice provided by you in a professional capacity.

Who needs it?

It was previously only required by a few professions such as accountants, lawyers and medical practitioners, where the results of their actions could have particularly devastating consequences. But now professional indemnity insurance is widespread, providing protection to a range of different professionals including insurance brokers, financial advisers and media representatives.

Is there professional indemnity cover for specific industries?

There are different kinds of professional indemnity insurance for different types of professions, such as medical indemnity insurance for medical practitioners and architects indemnity insurance for architects. And some professions require their members to hold professional indemnity insurance as a condition of being able to practise.

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Don Gribble

Don is a creative writer with extensive experience writing scripts, blogs, web content and ebooks. He enjoys writing because it allows him to know a little bit about a lot of subjects and to continue learning new things every day.

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