What is Principal's Liability?
What is a principal ?
A “ Principal” is any person who you have entered into a contract or agreement with to do work for; or to provide services in connection with your business. This maybe a written contract or agreement, or it may be another form of valid contract. Some insurance policies may provide a specific definition of what a “Principal” is and specify that a contract must be a written contract, others may not make this specification.
What is principal's liability ?
When you work for another business (the principal) and you act on behalf of that business as an (agent), if you make a mistake, cause an injury to a third party or damage the property of another person or business, that principal may be held liable for your actions because you were acting on their behalf. The business (principal) will in turn expect you to protect their business if you are the cause of an incident relating to work that you did for their business. Principal's liability insurance can provide this protection and help you to cover the associated costs.
How do I know if I need it?
If you work for another business and act as an agent for that business, you will likely need principal’s liability insurance. You will also need it if a contract or agreement you enter into requires you to have cover for your principal.
Do I need both public and principal's liability or just one type?
Generally, principal's liability or indemnity cover is not a separate type of policy to public liability. It is most commonly included in a general liability policy which includes public and products liability. Cover for the principal is usually found in the definition of who is insured under the policy. The primary party insured under a policy is the party who takes out the policy with the insurer. The policy also outlines the cover it will provide to other parties working with the insured business, such as principals.
What is an example?
For example, your business, Packaging Pty Ltd enters into an agreement to provide a contract packing service for Breakfast Cereals Pty Ltd where you will pack their cereals into boxes provided by them and then ship them off to Breakfast Cereals Pty Ltd’s end customer, Supermarket Pty Ltd. A customer goes to Supermarket Pty Ltd and purchases a box of cereal that your business packaged on behalf of Packing Pty Ltd and they find that it is contaminated with a screw and whilst eating the cereal they bite down on the screw and a tooth is cracked. When Packing Pty Ltd receives a demand for compensation by the customer to fix the tooth, Breakfast Cereals Pty Ltd, will expect you to indemnify them as the product they provided you did not have any screws in it. They know this because it was scanned by a metal detector before it left their premises. This is a situation where your principal may be held liable for your actions as their agent.
Why do I need it?
Depending on the circumstances of the claim, principals liability cover can protect your interests by looking after the principal and compensating for your negligence. If, however you are not liable the policy may also pay for certain costs associated with defending you for the allegation.
CGU provides public liability insurance which includes prinicpal's liability and can be tailored to your business needs, regardless of type or size. Visit cgu.com.au to find an adviser who can guide you on public and principal's liability insurance.
Click here for more information from the Australian Government relating to public liability insurance.
Click here to learn more about CGU’s public liability insurance policies.
You can read more about public liability insurance in our earlier blog article here.
About the Author
Kate Lowery is the Portfolio Technical Manager for Liability in Commercial Insurance at IAG where her role includes developing and running training, product development, monitoring emerging risks and maintaining underwriting tools. She has been with CGU since 2010, during which time she has held specialist and technical underwriting roles.
Kate holds a Bachelor of Insurance and Finance, and has 14 years of insurance industry experience with more than 10 years experience in liability insurance.