Public Liability vs Product Liability Insurance Explained

What is Public Liability Insurance?

Public liability insurance typically covers incidents where a person is injured or property is damaged due to your business operations, subject to policy terms, conditions and exclusions. This may be when something happens on your business premises, or while working at an external site. The alleged damage may affect a client, the general public, or their property.

Public liability may apply when a person is injured on a worksite, a contractor damages client property, or a customer slips in a store. In these and other instances, public liability insurance covers:

• Third-party bodily injury
• Third-party property damage
• Your legal defence costs, subject to policy limits and conditions.

What is Product Liability Insurance?

Product liability insurance covers claims that arise from products manufactured, supplied or sold by a business, including claims under Australian Consumer Law. Typically, a claim will be made after the product has left the business’s control.

In the case of service providers, such as repairers and installers, claims arising after completion of work may fall under products liability where goods have been supplied, or under public liability for completed operations.

A product liability claim may arise in situations such as a faulty appliance causing fire damage, contaminated food causing illness, or where an installed component later damages property. In these and other cases, product liability coverage includes:

• Third-party personal injury caused by a product/service
• Third-party property damage
• Your legal defence costs, subject to policy limits and conditions.

Public Liability vs Product Liability – What’s the Difference?

In the simplest terms, public liability insurance generally covers business activities, while product liability insurance covers products supplied or sold.

For service providers, the difference between product insurance and public liability insurance can relate to whether the claim arises from business activities or from goods that have been supplied. Public liability typically covers incidents arising from business activities, whereas product liability specifically relates to goods supplied or parts installed.

In practice, public and product liability are often combined into a single policy.

Common Insurance Scenarios – Public Liability or Product Liability?

Note that in addition to public and product liability insurance, service providers may also need professional indemnity insurance. This covers claims of financial loss due to incorrect or incomplete advice, mistakes in reports or calculations, missed deadlines, or failures to meet professional standards. Professional indemnity insurance is required in some Australian industries, and is also often required in client contracts.

Who Needs Public and Product Liability Insurance?

Public liability insurance is important for, but not limited to, tradespeople, builders, retailers, hospitality businesses, hairdressers, gym owners and event planners. Most Australian businesses that interact with customers or the public should consider public liability insurance. This includes both those with physical premises and those who work off-site. Public liability coverage is often required under lease agreements or within the terms of contracts.

Product liability insurance is essential for businesses that manufacture, import, distribute or sell goods, as well as those providing installation and repair services. These include retailers, wholesalers, contractors and hospitality businesses. Product liability insurance may be required as part of supply contracts and is sometimes a condition for council permits, depending on the type of business activity.

Holding appropriate insurance is important for protecting your business and its employees. It also provides reassurance to customers and peace of mind for business owners. If you’re not sure what sort of insurance you need, a general business insurance broker can help clarify your coverage needs.

How Much Public and Product Liability Insurance Do You Need?

Public and product liability insurance policies provide claims coverage up to a set dollar value, often $5 million, $10 million or $20 million. The appropriate limit will vary depending upon the nature of the business, where it operates or sells to, and the type of product. There may also be a minimum coverage required within client contracts.

In the case of importers, exporters and those operating across various territories, limits need to take into consideration who will be pursued for damages (for eg, the manufacturer or importer), along with the level of damages likely to be awarded within local legal systems. It’s also important to note that some policies may exclude certain territories or place different limits by location.

As a general rule, businesses should carefully review exclusions, limits and sub-limits to ensure all their business activities are adequately covered. A public and products liability insurance expert can help with this.

Protect Your Business with the Right Liability Insurance

Without insurance, a successful public or product liability claim can be enough to severely impact or even put you out of business. To mitigate this risk, it’s imperative that your business select the right type of insurance, be it public liability, product liability, or combined cover, as well as the right level of cover.

The advice of an insurance expert can be invaluable in making sure every aspect of your business is adequately covered. KBI insurance brokers can help identify operational risks, provide tailored insurance recommendations, and assist in weighing up the costs and benefits of each option.

For a liability insurance review and tailored advice from industry specialists, contact KBI today.

Frequently Asked Questions

Is public liability insurance mandatory in Australia?

Public liability insurance is not usually required by law in Australia, but is frequently required as a condition of contract, including for commercial leases, council permits, licences and event agreements. Contracts often specify minimum cover amounts, such as $10 million or $20 million.

Does public liability insurance cover damage to your own property?

No. Public liability insurance covers claims made by third parties for injury or property damage caused by your business activities. Damage to your own property or equipment would usually be covered under property or business insurance, subject to exclusions such as wear and tear.

Does product liability insurance cover product recalls?

Product liability insurance typically covers claims for injury or property damage, but does not automatically cover the additional costs of recalling products from the market. Expenses such as notifying customers, shipping returns, and replacing products may require separate cover.

Does liability insurance cover overseas sales?

Liability insurance can cover overseas sales or operations, but there may be territories that are excluded or where coverage limits apply. Businesses that export products should review the wording of their policy carefully to ensure the countries they sell to are covered and to an adequate level.