What is public liability insurance, and how much do you need?
What is public liability insurance, and do you need it for your business?
Public liability insurance is a type of insurance that can help you protect your business against third-party accidents and costly legal fees. It could be a good idea for you to have public liability insurance if you work with members of the public, if people visit your place of work or if you work on client sites.
That’s a lot of New Zealand SMEs. Tradies like plumbers and electricians are often required to have public liability insurance, but even home-based businesses like e-commerce may need it.
What does public liability insurance cover?
Public liability insurance cover is designed to protect businesses if:
· A member of the public (a customer, visitor or supplier) is injured, and ACC does not cover their medical costs
· Third-party property (for example, hired tools or a client’s property) is damaged
This could include situations like an employee having an accident in the workplace or property being damaged as the result of poor workmanship.
In short, it helps to insure your business against the cost of compensation and legal defence costs should your business cause injury to someone else or damage to someone else’s property.
Public liability policies do not cover:
· Damage to your own property
· Damage or loss as a direct result of professional advice you’ve followed
· Fines and penalties
There are other exclusions, too, some of which may be covered by other types of business insurance, for example, professional indemnity insurance.
You may want to consider a business insurance package comprising different insurance types to give you peace of mind. You can talk to an insurance broker to assess your business risks and vulnerabilities and find out what types of business insurance you may need.
How much does public liability insurance cost?
The cost of public liability insurance depends on how much liability coverage you may need. This is determined by your business activities and the risks your business faces. For example, a mine is likely to need a higher level of cover than a freelance photographer.
Types of liability insurance and how to calculate how much cover you may need
A wide range of New Zealand businesses and professional services are likely to need some sort of insurance policy which covers liability. Generally, the greater your business’ level of risk, the more cover your business is likely to need (and the higher the premiums may be). Ask yourself:
· What could go wrong?
· What protection do I have in place already?
· Am I required to have a certain level of insurance to operate?
You should also consider the type of business you run, your annual turnover, how many employees (and subcontractors) you have, the size (and type) of business premises you operate, and if your business has a claims history.
Our insurance broker experts say $2 million could be a good level of base cover for most small businesses in 2024. Remember, this needs to cover legal costs and compensation for property damage.
Businesses with a higher level of risk, like tradies (who may have higher legal liabilities or a higher risk of accidental damage), may want to consider a higher level of cover – around $5 million.
Cover of $10 million or more may be the right choice for larger organisations with many employees or for businesses in high-risk industries like mining, healthcare and manufacturing.
Inflation has caused many costs (including legal fees) to increase in recent years, so if you set your public liability insurance cover amount some time ago, review your policy to make sure it still meets your business needs.
Types of liability insurance
General liability insurance
General liability insurance is a broad public liability insurance type that covers physical damage to property or personal injury to others.
Example
A customer slips on a spilt drink in a cafe and suffers a back injury, which means she is unable to work for six months. She sues the cafe for medical costs not covered by ACC, lost wages and other expenses.
The cafe’s general liability insurance could help cover their legal costs and the costs they must pay to the customer.
Statutory liability insurance
This type of liability insurance policy covers an inadvertent breach of New Zealand statute. Typically, this is when an organisation unintentionally breaches a statute, for example:
· Resource Management Act
· Building Act
· Fair Trading Act
· Health & Safety in Employment Act
Statutory liability insurance helps cover investigations or prosecutions by regulatory bodies (like councils and government) for an alleged breach. All organisations are potentially exposed to this, but some business types have a higher risk than others.
Example
A farmer’s effluent pond structure fails, and the contents are released into the environment. The farmer is liable for legal defence costs and clean-up costs (note that any fines won’t be covered by this type of insurance).
Because regulatory bodies have large funds for this type of litigation, it’s a good idea to think about how much defence costs could be when deciding how much cover you may need under this policy.
Employers liability insurance
Employers liability insurance covers costs relating to employees’ personal injury claims not covered by ACC. As ACC’s coverage has expanded over the years, there is now less exposure for most New Zealand businesses. Premiums for employers liability insurance, therefore tend to be much lower than other types of insurance.
However, there are some businesses and industries which carry a high level of risk for injury, such as mining.
Insurance claims could arise from a variety of situations, including:
· Depression and anxiety
· Shock, stress or fright caused by witnessing a traumatic injury or fatality
· Disease caused by poor workplace health and safety measures
Example
Two employees are driving in a company vehicle on their way to a job site. They’re involved in a collision, and the driver is seriously injured.
The driver’s medical care is covered by ACC, but the company is liable for the costs associated with the stress of the passenger who witnessed the driver’s traumatic injury.
Other types of insurance to consider
Employment disputes – covering mitigation, management and costs associated with employment disputes, unfair dismissal claims, or where a company has breached the Fair Pay Agreements Act.
Professional indemnity – covers businesses that provide professional services and advice in the event that the service or advice results in loss or an accusation of a negligent act.
Product liability insurance – for costs relating to faulty products which cause damage or loss to a customer, purchaser or third party.
Directors and offices (D&O) – this policy covers the cost of defending directors and managers against allegations of wrongful acts.
If in doubt, ask
A qualified insurance broker can help you analyse your business’ needs, from considering industry-specific exposures to weighing up a coverage limit that aligns with your risk tolerance and budget.
Talk to our team; they will help you find out what’s right for you.
This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein.
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Marsh Ltd (NZBN 9429040918792)(“Marsh”) arranges insurance and is not an insurer. This webpage contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire the product, refer to the specific policy wordings and/or product disclosure statements available from Marsh on request.