Advice and Opinion

What’s involved in a public liability insurance claim?

Caution Wet Floor

Liability insurance is an important aspect for businesses of all shapes and sizes. A public liability insurance policy protects a business against financial losses should it be found to cause injury to a person, destroy a third party’s property, or if an employee’s negligent action caused damage to a third party during business operation.

This is according to Simon Colman, Executive Head: Digital Distribution at SHA Specialist Underwriters, who says that due to the unpredictable nature of public liability claims, it is vital that business across all sectors in South Africa have sufficient liability insurance in place to protect against potentially huge financial losses relating to a costly liability claim.

“Liability insurance is vastly different from any other type of insurance available in the commercial market, mainly due to the fact that it is much easier to quantify the value of an asset for short-term insurance purposes, as opposed to estimating the cost or damages of possible litigation against a business,” explains Colman.

Below he lists the five most common public liability legal insurance claims:

Slip and Trip

In this instance shopping centres, supermarkets and hotels are usually victims of slip and trip liability claims. Property owners, particularly those that have high volume of visitors, who are susceptible to bodily injury claims from either their guests or customers can be on the receiving end of such a claim. The incident / injury can easily be caused by a wet spot on the floor or an uneven tile. In these cases, the third party injures themselves but will allege that the property owner has been negligent. If the case goes reaches the court, the judge will look at the property owner’s responsibility to warn its customers of the hazards by means of signs and indemnities, time taken to clean up, maintenance etc. These type of claims can run into hundreds of thousands (or even millions) depending on the injury that the third party has sustained.

Property damage or injury through the supply of a product

It is possible that consumers or clients can sustain injuries or have their property damaged by products supplied by retailers or manufacturers. The Consumer Protection (CPA) imposes strict liability on suppliers for such injuries or damage (section 61 of the CPA), meaning it does not have to be proved that the manufacturer was negligent if the injured party meets the definition of a consumer. Poor quality of products or badly formulated instructions on product labels are generally to blame in these instances. There have been a number of claims in the local agriculture sector whereby the incorrect product was supplied and caused losses (like the wrong pesticide or herbicide for example).

Damage to property following defective workmanship

These type of claims are common within the automotive repair or building construction / renovation sectors. For example, a repairer or contractor can cause damage to a third party’s property due to some defect in the workmanship. Most liability policies do not cover the actual rectification costs of the damage to the item that was being worked upon, but rather the resultant or consequent damage.

Financial loss due to an ineffective product

These claims are generally known as ‘inefficacy claims’ as they usually relate to losses of a financial nature, because a product did not do what it was supposed to, or expected to do. This is very common in the supply or formulation of chemicals sector. Taking the agricultural sector as an example again, pesticides, seeds and animal feed are all high risk exposures to this type of liability. When calculating the loss sustained by the third party, liability insurers generally calculate the difference between the expected return (if the product had worked correctly) and actual return.

Liability flowing from sudden and unforeseen pollution

There is a bigger focus on environmental issues and sustainability in the modern industrial environment. This type of liability claim can be brought against transporters that spill fuel or chemicals, possibly after a vehicle accident, or against property owners who allow pollutants to escape onto third party property. These claims can include clean–up costs, legal defence costs and damages. Most liability policies will require that a third party will file the legal action before the policy responds, but many insurers will cover some part of the clean–up cost in order to mitigate the risks of lawsuits. It is also important to note that road risks generally have to be insured under a separate policy and not with the public liability coverage.

“There may of course be other exposures that are particular to a business and this is why business owners should review their liability policy at least once a year with an experienced broker. This will go a long way to ensuring the widest possible coverage and avoiding potentially devastating financial losses due to public liability claims,” concludes Colman.