What is Liability Insurance? 

Liability Insurance is a general term that covers multiple types of insurance cover that help people and businesses protect themselves from potentially large legal defence costs and any damages awarded by a court. 

The main types are Public & Products Liability, Professional Indemnity, Management Liability, Statutory Liability & Product Recall. These also specialist liability insurance for the aviation, marine, Care and finance industries. 

Why is Liability Insurance important?

Some Liability Insurance is mandatory, which means the government requires you to have it in place to operate the business – like Professional Indemnity for architects or CTP Liability Insurance for registered cars and trucks. Other types are optional, with the scope and amount of insurance cover chosen by the business owner.

Anyone who deals with the public, sells, imports goods, drives a car or truck or operates a plane or boat should have Liability Insurance, which has two main cover sections:

1. Public Liability – injury to the public or damage to their property on the business premises or caused in a truck or boat accident.
2. Product Liability – once the item you sell or repair leaves your control (for example, a plumber installing a washing machine), if it damages or injures someone then you could be legally responsible.

Additional covers include:

• Professional Indemnity – if you provide advice or a service, such as an accountant, care worker or building consultant, you could be legally liable for any advice you provide, which results in external clients or customers being financially worse off.
• Management (D&O) Liability – covers the personal liability of directors, officers and senior managers for mistakes they make in running the business. This may result in a loss to the company, its shareholders, or bank or an investigation by ASIC, EPA or other government agencies.

What does Liability Insurance cover?

Cover depends on the type of Liability Insurance you’ve purchased, as well as your business and your industry:

1. Public Liability Insurance – covers people, businesses, events and contractors for legal defence costs if legal action is taken against you or the business, whether it’s a genuine claim or a try-on from a disgruntled customer. This insurance will also pay any damages awarded by a court if found responsible for causing personal injury or damage to property, as well as any resulting financial loss. While Public Liability cover can be mandatory, like plumbers in some states, it’s mostly optional and a decision for the business owner.
2. Product Liability Insurance – If you make, import, sell, distribute or repair products, you can be responsible for personal injury, property damage or resulting financial loss due to faults in the product, product advice about the use, or even customer misuse. You are unlikely to be able to depend on the original manufacturer, importer or retailer to protect you and pay for your legal costs. So, it’s a good idea to take out Product Liability Insurance as protection against potentially having to pay expensive legal defence costs and any damages awarded by a court.
3. Professional Indemnity Insurance – provides cover for professionals which is any person that has expertise and is usually part of a trade or professional group, such as builders, designers, architects, IT consultants, and allied health professionals, as well as doctors and lawyers. It covers legal defence costs and any damages awarded from an act, error or omission arising from professional services you and your business provide to customers and clients.
4. Management Liability Insurance – covers directors, officers’ and senior managers against actual or alleged acts, errors or omissions arising out of the operation or management of the company. The cover is for personal legal defence costs, as well as any damages awarded for a breach of work-related duties and responsibilities. The policy will also reimburse the company for any legal costs advanced to the director or officer.

As you can see, there’s a wide range of Liability Insurance, with cover tailored to each industry and type of business. The better advice you get, the more informed your decision to ensure the best protection for you, your directors and managers and the business.

We’ll be glad to talk with you to understand your needs and provide advice on the best way to manage your personal and business liabilities.

Frequently Asked Questions

What is an example of liability insurance? 

There are mandatory and optional liability insurance covers required by government bodies or professional organisations.

1. Mandatory or Statutory Liability Insurance policies include Professional Indemnity (also referred to as PII or E&O insurance), Motor Vehicle CTP, Workers' Compensation and Builders Warranty.
2. Optional Liability Insurance policies include Property Owners’ Liability under a home or property insurance package, Protection & Indemnity insurance for boats, Public Liability for shop or office owners, and Product Liability for importers, wholesalers and builders.

What is covered by liability insurance in Australia?  

Liability Insurance covers a person or a business against claims (whether real or invented) that the person has been injured, their property has been damaged, or they’ve suffered a financial loss. All policies provide legal costs to defend against threatened or actual litigation, and also pay for damages if you or the business are found to have been responsible.

What kind of liability insurance do I need? 

Some occupations, such as builders or tax agents, must have Liability Insurance in place before starting a business. Talk to your professional organisation or industry association about what insurance you need. Other Liability Insurances are optional – for example, a large food producer may look at buying Product Recall, whereas retailers and property owners would purchase Public Liability. Motor Vehicle CTP and Workers' Compensation are required if you own or operate vehicles or have employees.

What is Professional Indemnity Insurance? 

If you or your business provide professional advice or services, then you’re likely to need Professional Indemnity (PI) Insurance.

This insurance provides and pays your legal defence costs in the event that a customer complains that they followed negligent advice and suffered a financial loss – even if there’s no real basis for the complaint. If there was negligence, PI Insurance will also pay any damages awarded by the court.

Without Professional Indemnity Insurance, you or your business could be faced with having to organise your own legal defence, and pay potentially large legal bills as well as damages awarded by the court. The average claim amount is over $100,000 for legal costs, expert reports, and damages, so it can be a large amount to have to find quickly.

Typical professionals that purchase PI Insurance include:

• real estate agents
• construction consultants
• healthcare or allied health
• IT consultants
• lawyers 
• doctors.

Why is Professional Indemnity Insurance important?

Professional Indemnity Insurance is mandatory for many professions and must be in place before starting a business. It’s recommended that you check with your association or insurance adviser to find out if PI cover is compulsory, and the sum insured required.

For other professionals, although this insurance cover may not be compulsory, it’s an easy way to protect yourself and your business from large financial losses. Even with the best training or risk management, people still make mistakes, contractors can provide incorrect specifications, and advice can be misunderstood.

It’s worth noting that the cover provided by Professional Indemnity is different from Public Liability Insurance which covers defence costs and any damages relating to personal injury caused to people or damage to their property. This is not the same as financial loss caused by an architect placing walls in the wrong location on plans or an IT professional recommending the wrong software.

What does Professional Indemnity Insurance cover?

The exact cover will depend on your occupation and scope of activities. Broadly speaking, Professional Indemnity Insurance covers any negligent act, error or omission relating to:

• misleading, inaccurate or negligent advice; breach of confidentiality or privacy
• breach of consumer, competition, and fair trading laws
• loss of documents
• infringement of intellectual property rights
• malpractice, misdiagnosis, failing to order the appropriate tests, failure to treat
• defamation, libel or slander, including costs of disciplinary proceeding costs, claim investigation and expert reports
• public relations costs
• legal defence costs
• payment of damages.

As you can see, Professional Indemnity is a complex insurance with a wide range of cover options. We’ll work with you to understand your business, provide options to manage your professional risks, and recommend insurance cover.

Frequently Asked Questions

Who needs professional indemnity insurance? 

Anyone who is specially trained, provides advice or service, and is a member of an association or profession can purchase this type of cover. Real estate agents, construction consultants, engineers, healthcare or allied health professionals, designers, lawyers, IT consultants and doctors all need Professional Indemnity Insurance. 

In some workplaces or industries, it is mandatory to have this cover. Even if not compulsory, this insurance is important to protect you and the business from having to pay significant legal costs, as well as damages, if found to be at fault.

How much does professional indemnity insurance cost?  

Professional Indemnity covers you or your business for legal costs and any damages if there is an actual or alleged act, error or omission that causes a financial loss to a client or customer.

Premiums are typically based on:

1. Your industry – for example, construction, IT, or medical, some are at higher risk than others.
2. The scope of your business activities – for example, whether you’re a fire engineer or an IT engineer, the turnover/ revenue and number of employees or contractors.
3. Prior claims experience – the more claims or lawsuits, the higher your premium (and excess) are likely to be.

●    What is the minimum professional indemnity insurance? 

The amount of Professional Indemnity cover you need depends on:

• your occupation and potential for financial loss to the customer if there was negligent advice
• any mandatory requirements of your association
• the level of cover you choose, based on your level of risk, as well as the cost of the insurance.

Because different professions present varying levels of complexity and risk, we recommend talking with your insurance adviser – they are professionals who can work to understand your business and provide you with options to choose from.

What is SME Business Insurance?

Any business in Australia, including small to medium-sized businesses, will benefit from an added layer of financial security in the form of an SME Business Insurance cover. This provides owners and businesses with protection against financial risks and the loss of key assets. It also protects customers, employees, suppliers, and contractors.

Some types of insurance are mandatory, like Workers' Compensation, Professional Indemnity, or CTP Insurance for motor vehicles – these are called statutory insurance covers. Other types of insurance are optional, but they are important ways of reducing business risk and protecting your finances and assets.

What does SME Business Insurance cover?

• Property Damage – cover ranges from fire, storm, lightning and other perils to any type of accidental loss or damage. The property insured includes damage to buildings, contents, stock, plant and equipment, raw materials, and consumer goods.

• Business Interruption – covers weekly amounts or net profit loss and ongoing fixed costs following property loss or damage. Also referred to as Loss of Profits or Consequential Loss Insurance.

• Burglary/Theft - covers break-in at the business premises and the damage is done, as well as theft of goods or stock;
• Money - covers theft of money in various locations (during transit, in a locked safe, or in a private residence) at any time (within and outside business hours). 
• Liability - covers a variety of statutory and civil legal liability, including personal injury and property damage, environmental liability, management liability, statutory liability, professional liability, aviation, marine and motor vehicle-related liability;
• General Property - covers specified portable property against accidental loss or damage once it is taken off the premises, within Australia or overseas; 
• Equipment - covers sudden internal derangement and accidental loss or damage to plant, equipment and machinery, as well as computer and other electronic equipment. Loss of stock and business interruption cover can also be part of this insurance. 
• Motor vehicle & mobile plant – covers registered and unregistered motor vehicles, mobile plant & equipment, farm equipment, construction plant, as well as attachments and trailers. This insurance can also cover loss of income, downtime and hire costs of replacement equipment. 

Speak to an insurance expert

It is our business to understand your objectives, needs, financial situation and risk profile and provide you and your business with tailored risk and insurance advice. 
This is how we work with your business:

1.    We analyse your objectives, needs, financial situation and risk profile to develop appropriate strategies and solutions. 
2.    With your input, we undertake risk assessments and conduct market research to determine the most suitable insurance product(s) for your key risk exposure. 
3.    Your insurance adviser will present appropriate strategies and solutions and also negotiate and place insurance covers agreed.
 

Frequently Asked Questions

• How can insurance help small businesses in Australia? 
  • In Australia, small businesses are encouraged to invest in business insurance to help protect their business from costly eventualities like damage to property and liability claims. Investing in a comprehensive yet affordable insurance policy promotes the continuity of the business in times of losses or great financial trouble. 
• What does SME stand for? 
  Small-to-medium enterprises (SMEs) are businesses whose revenue, number of employees and assets do not exceed a certain threshold. Each country or industry defines a set of criteria to determine whether an organisation falls under the SME category.
• How can insurance help small entrepreneurs or SMEs, or how it relates to risk management? 
  Risk transfer is one of the treatment approaches in managing risks in business, and insurance is an example of risk transfer. It’s a strategy that SMEs employ to shift a risk or a liability from one party to another when that party specialises in managing a specific kind of risk/liability. 
• Why is insurance important for business owners? 
  Getting an insurance policy for your business is important, as it cushions or completely shields you from the hefty costs of certain unforeseen issues (accidents, damages to properties, effects of force), legal claims, and other liabilities. Without insurance, business owners might be forced to foot the bill out of their own pocket.