What is the difference between public and products liability?
What is a liability policy?
During the ordinary course of business accidents can happen, where an accident occurs which is not reasonably foreseeable and causes damage to the property of another party or causes injury to a person, (other than an employee of a business which is usually covered by workers compensation), the business may be found legally liable for the injury or damage. The injury or damage may be caused by any number of exposures a business will face every day, it may be a customer on your premises, it may be you conducting business at another premise that is not your own, it may be in a public place, it may be from a product that you have manufactured, sold or supplied.
A public and products liability policy will protect you from the financial risk associated with these types of claims. For a claim that is covered by the policy, the policy will pay the costs to investigate, defend or settle such claims and will also cover the cost of compensating the injured party.
What is public liability?
Public liability is a term used to describe liability to the public, that is, any third party to your business. It is sometimes defined in a policy as follows: “Public Liability means your legal liability in respect of personal injury or property damage or advertising injury happening in connection with the business…… other than Products Liability”
- A customer slips on a liquid spill on your premises - which should have been cleaned up but wasn’t - and suffers an injury as a result of their fall;
- You are working on a client's premises and you damage their property when you drop your hammer on their marble floor;
- Your premises catches fire during a manufacturing process and your neighbours cannot access their premises for a number of days because of the fire. As a result, your neighbours are unable to conduct their business. You also had customer goods on your premises that were in your custody for repair - these goods were all destroyed.
What is product liability and how does it differ from public liability?
The term product liability is introduced for the purpose of applying a limit during the period of the policy for claims which are caused by a product of the business.
“Product Liability means your legal liability in respect of personal injury or property damage caused by or arising out of any products or the reliance upon a representation or warranty made at any time with respect to such products; but only where such personal injury or property damage happens after physical possession of such products has been relinquished to others”
What is considered a product will be defined in the policy and is usually anything manufactured, sold, constructed, erected, installed, grown, treated, altered, modified, repaired, serviced, bottled, labelled, handled, sold supplied, resupplied, distributed, imported or exported by your business and includes the packaging, labelling, advice, warnings given or omitted in connection with any products.
- You manufacture hot water bottles and the hot water bottle bursts due to a manufacturing fault and burns your customer;
- You manufacture flour which you then supply to a large bakery. The flour is contaminated, the bakery does not know that it is contaminated and uses it in their cakes and bread, after they have made their cakes and bread they become aware of the contamination and all of their cakes and bread have to be destroyed as a result of your contaminated flour;
- You import components manufactured in China direct from the manufacturer to make your product, the components are found to contain high levels of lead which are unsafe for human use. Because the manufacturer is not an Australian business and is not represented in Australia the responsibility for the lead contamination will be your responsibility. This responsibility is given to you by the Australian Consumer Law Act, (previously known as the Trade Practices Act 1974 (TPA)).
A liability policy will generally be issued with two limits - one for public liability and one for products liability.
A policy will usually cover all claims made during the period of the policy up to the specified limit, e.g. $20,000,0000 for any claim for public liability for an unlimited number of claims. Claims for products liability will usually be covered up to an aggregate limit - meaning all claims arising from products cannot exceed the limit issued e.g. $20,000,000 during the period of insurance. Once claims that arise out of products liability reach that limit, the policy will not pay any more claims.
CGU offers a comprehensive range of insurance cover for small businesses including public and products liability cover. Speak to you insurance adviser to get the cover that it right for you. Visit cgu.com.au to find an adviser.
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.