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What Does Public and Product Liability Insurance Cover?

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Public and product liability insurance covers legal fees and compensation if a third party (e.g., customer, passer-by, etc.) sues a business for personal injury or property damage. It covers accidents that might happen in the course of business as well as injury or damage from a product the business designs, makes, repairs, or sells.

Public and product liability are considered to be essential coverages for many businesses, which is why they’re some of the most popular types of business insurance. Without it, a business is left open to being sued by a third party for bodily injury or property damage.

The potential cost of legal defence on top of compensation claims could easily be in the tens of thousands of pounds, if not much more in some cases. That could put a company out of business. For this reason, public liability and product liability insurance could be the best business decision a business makes.

Public liability insurance cover

Public liability insurance covers if a third party becomes injured due to a business’s work or their property is accidentally damaged. A third party could refer to a client, customer, or general public member who could blame a business for an accident and sue.

Defending legal action is very expensive. With legal fees, settlements, and compensation payments mounting up, it’s unlikely a small business will have the resources to defend itself as a small business. It can cost tens of thousands of pounds or more, putting a business at risk and potentially forcing it out of business.

That’s where public liability insurance comes in. This form of business insurance can pay for legal advice when defending a lawsuit due to certain accidents. Compensation, medical and repair bills can also be covered if a business is found liable.

Most businesses have some exposure to third-party liability, which is why they should consider public liability insurance. Whether a sole trader, partnership, limited company, or registered charity, if a business has any dealings with public members, it is at risk.

The cover is commonly sold at £1 million, £2 million, and £5 million levels, although more or less can be purchased depending on needs. The level of cover should be based on the risk a business faces and the size of a potential claim.

For instance, a construction company operating dangerous building sites is likely at high risk, needing a higher level of cover. Whereas a tutoring business probably doesn’t face as much potential risk.

 

It’s worth noting that public liability insurance is all about the third-party cover. This means it won’t cover injuries against employees or damage to a business’ property. A business would need employers’ liability insurance or commercial property insurance for these.

 

Product liability insurance cover

Product liability insurance covers instances where a product that is designed, created, repaired, or sold by a business causes injury or damage to a third party. Product liability is often wrapped together in the same policy as public liability insurance but can sometimes be bought separately.

It works in the same way as public liability insurance. If a third party, like a customer or supplier, decides to sue for injury or damage, the underwriter can cover legal fees and compensation.

But do all businesses need it? If a business is involved in the supply chain of a product, whether that’s the design, manufacturing, distribution, supply, or even retail, then it’s something to consider. Speaking with an insurance broker or agent can alleviate any questions.

Even if a business only sells or resells a product, coverage would still be required to ensure its safety. The Consumer Protection Act 1987 Section 2(1) states that “…where any damage is caused wholly or partly by a defect in a product, every person…shall be liable for the damage.”

There are three main areas that product liability insurance would provide cover:

  • Design defect: An issue with the original conception and design of the product means it is unsafe.
  • Manufacturing defect: An issue with the manufacturing process causing a product defect or flaw and is therefore unsafe.
  • Warning or labelling failure: The instructions or warnings on a product do not adequately tell a third party how to safely use it.

Again, a common exclusion is an injury against employees or damage to business property. It may also fail to cover instances of bad workmanship or a third party’s financial loss caused by the product.

Like with public liability, the level of cover should reflect the risk faced by the business. If there are lots of high-risk opportunities for issues to arise, then seek more cover.

Examples

Below, are some scenarios where public and product liability insurance would cover a business should a third party be injured or have their property damaged.

Public liability examples

A deli selling locally made produce is open to the public, so there’s a lot of footfall. One day, a customer trips over some stock that an employee left out and sues the deli for their injury.

Or, say, a carpentry business creates handmade furniture. When installing a piece of furniture at a customer’s home, employees accidentally cause some property damage. The customer sues the business and claims compensation to cover the damage.

Product liability examples

On the weekends, a trader resells conserves from a market stall. But, after buying and consuming the product, a customer becomes ill and blames them for food poisoning. They sue and demand compensation.

A dog toy manufacturer who designs and creates the products has a design defect which means parts easily fall off when chewed. This causes several dogs to become ill as a result. The business is sued for damages plus the cost of vet bills.

In these examples, public and product liability insurance can kick in to protect businesses. They can help cover the cost of legal fees and medical bills, repair costs, and compensation if the business is found liable. However, recognise that every policy has exemptions, so make sure to check before buying.

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