Public liability insurance covers your business when you are liable for damage to someone else’s property, injury to someone else, or another party incurs losses in connection to work that you’ve done or products that you’ve supplied.
For many businesses in New Zealand, public liability insurance is mandatory through the supply, service or lease contracts you accept. However, even if your business isn’t compelled to take out public liability insurance, it’s an important way to mitigate risk in your business.
Even when you do your job or run your business to the best of your ability and according to industry best practices, things can and do go wrong. These can be minor inconveniences or can create major dramas.
For example, consider a plumber installing new taps on the fifth floor of an apartment block. For some reason the new fittings fail, causing terrible water damage in the apartment and those below it, all the way to the ground floor. Replacing the fittings should be relatively simple but the water damage and other costs incurred by the residents could easily be in the tens of thousands of dollars.
Regardless how the fittings failed, it could be an error by the plumber or something wrong with the fitting itself, the plumber is likely to be the target of legal attention and if there was no public liability insurance the plumber will be extremely anxious about paying the legal and possible compensation costs.
If there is no public liability insurance, the resulting claims on the business owner could put the business in jeopardy and even compromise the livelihood of the business owner. Bankruptcy could become a very real possibility.
But even in a more minor situation, the costs associated with fixing accidental damage or making good on losses can become untenable for a business.
Furthermore, this doesn’t take into account the risk of a false claim on a business. For example, a customer may misuse a product they bought, contrary to clearly-marked instructions, which results in injury or damage. While the customer isn’t likely to have a valid claim in this case, that doesn’t stop them from pursuing the business for payment. If this were to happen, a public liability insurance policy could help cover the costs of a legal defence against the claimant.
There are four key reasons for businesses to have an appropriate public liability insurance policy in place:
- Inability to operate. In many cases, like leasing premises or supplying products and services, the business is required to provide evidence of public liability insurance, usually for a prescribed amount of cover.
- If an accident happens, many businesses would be unable to cover the costs of repairs and compensation to the affected party. A successful claim against the business could be enough to put the owner out of business and could put the owner’s personal assets such as their family home at risk.
- Most business owners want to build a reputation for fairness and ethical dealings. When public liability insurance is in place, it’s easier for these organisations to quickly rectify any mistakes or accidents, thus maintaining the business’s good name.
- Business owners are liable if their employees cause an accident. Insurance can prevent the employee and the business owner from paying personally.
It’s advisable for business owners to seek advice from an insurance broker who is experienced with public liability insurance and who can help you understand what policy is right for your business. Working with a broker helps you get the right insurance policy for the right price, and can also make it easier if you need to make a claim.
To find out more, contact a NZbrokers member today.