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What's public liability insurance?

What is public liability insurance?

Public liability insurance is a type of business insurance that provides cover for any third-party injuries or damages arising from your negligence. 

How does Australian law define negligence?

Negligence is when a party’s action or inaction causes injury or damage to a third party or their property. The legal test of negligence is whether a party exercised “reasonable care” to prevent injury.

For example, if a tyre manufacturer received several reports of its tyres failing and did nothing to remedy the design flaw, the manufacturer might be guilty of negligence, should a tyre failure cause a crash that injures someone. 

What does public liability insurance cover?

This type of business insurance covers:

  • the cost of the third party’s damages or injuries

  • additional court-ordered compensation to the injured parties

  • payments to surviving family members in wrongful death cases

  • legal defence costs. 

Is public liability insurance compulsory?

Generally, public liability insurance is recommended but not required by law in Australia. However, in some states for certain occupations this form of business insurance is compulsory.

Can I forgo public liability insurance?

Even if your state doesn’t require public liability insurance, it’s still a wise investment if you have employees. Why? Because it covers the negligent acts of people you employ. 

Suppose you run a supermarket, and a customer spills a drink on the floor. The store manager is aware of the spill, yet makes no effort to clean it up or place a “wet floor” sign in the area. Another customer slips on the spill and suffers a serious injury. Your public liability insurance would likely cover that customer’s medical care and lost wages, if their injury resulted in unpaid time off work. 

How much does public liability insurance cost?

The cost of public liability insurance varies, depending primarily on the type of business and the business size.

For example, businesses that pose a greater risk to the public — such as hazardous materials manufacturers — will likely pay higher premiums than, say, a software company. 

Companies that have thousands of employees and customers can also expect to pay more for public liability insurance than small local companies as their level of risk is higher. 

How's public liability insurance different from professional indemnity insurance?

Public liability insurance protects your business should its activities cause damage to property or injury to third parties. In contrast, professional indemnity insurance protects your business should it provide advice or a service that results in financial losses. 

For example, a business hires an independent accountant to manage their payroll and the accountant fails to lodge PAYG withholding. Here, the accountant’s professional indemnity insurance could cover any late-payment penalties the business incurs as a result of the accountant’s negligence.    

How do I find a public liability insurer?

The Insurance Council of Australia has a searchable database of insurers that you can filter by business sector. If you already have other types of business insurance, you may want to check with your insurer to see if they offer public liability insurance.

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