What is public liability insurance?

Public liability insurance protects your business if someone sues you for injury or property damage.

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Your business could get hit with an expensive lawsuit for any number of reasons: someone hits their head after a chair collapses in your lobby, one of your employees spills wine on a customer’s tux or a passerby slips in a puddle of water after you hosed down the sidewalk.

Public liability insurance will not only pay for not only the damages you owe in cases like these, but it will also take care of your legal fees.

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Do you or your business need public liability insurance?

You’ll need public liability insurance if you come into physical contact with the public, clients, customers, suppliers or any other human beings in the course of running your business.

Therefore you’ll need it if:

  • Your business has a physical location that’s open to the public. If people are coming and going, they can get hurt or have something of theirs damaged. It could be something as simple as a client snagging their dress on an exposed nail or something more serious like a child slipping and falling on an icy front step.
  • You work on location (e.g. house calls). This is another situation where you have the potential to damage someone else’s property, for example knocking over someone’s vase while you’re on a house call.
  • You sell physical products. Products have the potential to hurt people or damage their stuff, for example, if someone has an allergic reaction to your homemade hand soap. If you sell products, you’ll need a special type of public liability insurance called product liability insurance.

If you’re a freelance programmer who writes code from your personal computer all day, it’s possible you wouldn’t need public liability insurance. However, most types of businesses will need it including:

  • House cleaners
  • Retail shops
  • Cafes and restaurants
  • Personal trainers
  • Salons

Case study: Can this happen to me? Cup of coffee Image: Supplied

After years of working in various cafes around Wellington and slowly learning how to prepare the perfect roast, Tim finally decided to open his own cafe. One day, Tim’s new barista prepared a fresh cup of tea but didn’t let the water cool down enough before serving it to the customer.

The customer burned her lip and had to have reconstructive surgery to fix the damage. She decided to sue Tim for the damages she suffered, including lost time at work, out-of-pocket medical expenses and emotional suffering.

Tim hired a lawyer who struck a deal with the victim’s attorneys. He paid for the victim’s damages but it was much less than he might have owed if the case had gone to court. Tim’s public liability insurance kept Tim out of hot water by paying his lawyer fees and the money he agreed to pay the victim.

Am I covered for advice and services?

There are some types of lawsuits that a strict public liability policy won’t cover. A competitor could sue you for slandering them in your advertising, a client can sue you for giving them bad financial advice or a customer can sue you after a bad reaction to your hand lotion.

Some insurers have expanded their definition of public liability to cover some of these other areas of liability, but that’s not always the case.

  • Product liability insurance. This covers you for injury and damage related to physical products you sell. It’s a type of public liability insurance and most insurers will include it in their public liability cover, but not all do. If you sell products, make sure your policy includes product liability cover.
  • Advertising liability. This covers you if someone sues you for copyright infringement, slander and other damages related to your advertising. Some insurers include this as part of their public liability insurance, but not all do.
  • Professional indemnity insurance. This covers you for all types of loss related to your professional services including injury, property damage and financial loss. Examples include giving someone nutrition advice that ends up harming them or financial advice that ends up losing them money. Most public liability policies don’t include this cover but you can add it to your overall business insurance package.

What is the difference between…

Public liability insurance, product liability insurance and professional indemnity insurance?

What follows is a quick rundown, but you can also check out our detailed guides for a fuller explanation.

Do I need all three types of liability insurance?

Each of these products covers a different set of situations. That means you won’t be able to buy public liability insurance and have it cover situations that are more suited to professional indemnity (or vice versa).

Insurers will sometimes bundle public liability and product liability together and call it something like business liability insurance, public and products liability insurance or just liability insurance. If you need both types of these, a combined policy like this is just fine. Just read the fine print to make sure it covers both sets of circumstances, and don’t forget to add professional indemnity insurance if you need that too.

Can I combine public liability and professional indemnity under one policy?

Professional indemnity insurance covers the professional and his or her actions but does not provide cover for an accident that may take place on the professional’s premises when a customer is present. The professional will have to purchase public liability insurance cover as part of his or her full insurance package.

Is public liability insurance compulsory?

Carrying public liability insurance in New Zealand is generally not mandated by law, although it may be required for particular industries. You may also be required to carry it if you enter into a contract that says you must. Here are a few scenarios where you’d be contractually obligated to carry public liability insurance:

  • It’s required to earn your licence. Some businesses will require you to hold this insurance if you work in an industry that is especially prone to accidents. For example, you may not be able to get your electrical contractor license unless you hold this cover.
  • It’s required for a particular job. If you’re a subcontractor on a large worksite, the builder may require that you hold public liability insurance.
  • It’s required to hire a venue. If you are organising a public event and have hired a venue, the venue owner or local council may require you take out a public liability policy.

Contract or not, public liability insurance is a foundational form of protection that most business owners should consider. Lawsuits can run into the millions of dollars and could easily become the biggest financial liability to your business.

What doesn’t it cover?

There are a number of things public liability insurance doesn’t cover. These can differ from policy to policy, so you’ll need to familiarise yourself with your policy’s specific exclusions. But to give you some idea, here are some of the most common exclusions you’ll encounter.

You usually won’t be covered if the claim involves:

  • Lawsuits that don’t involve property damage or injury. If you give a client bad professional advice (for example investing advice) and it ends up losing them money, they can sue you for damages but public liability insurance won’t cover you. For that, you’d need professional indemnity insurance.
  • You damage something or injure someone while using a vehicle. If you hit someone in your business car, that’s a matter for car insurance. Many business policies offer business car insurance that covers property damage, but that’s separate from public liability insurance.
  • Injury or property damage to your employees. That’s covered by your compulsory worker’s compensation insurance.
  • Damage to your own property. You won’t be able to claim if you snag your own shirt on an exposed nail.
  • Slow escaping pollution. Most insurers won’t cover damages related to pollution that seeps or escapes into the land or atmosphere unless it is a sudden and unintended event where the pollution escapes all at once. For example, if you run an auto shop and oil has slowly been leaking into a nearby stream for months, you probably won’t be covered. On the other hand, if your oil tank suddenly malfunctions and damages the neighbours driveway, you will be covered.
  • Known defects. If you sell a product with defects you already knew about, you won’t be covered.
  • Fines. Your policy will most likely not cover any fines imposed by the government or other regulatory agency.
  • Asbestos damage. The dangers of asbestos have been known about for so long now that insurers will not cover you if people are exposed to asbestos at your place of business.
  • Damage to data and media. Although data can be considered property, your public liability insurance won’t protect you if you damage someone’s data or electronic media. That’s a job of cyber insurance.
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