The devastating gas explosion that rocked a quiet Christchurch street earlier this year made me think about Public Liability insurance. Yeah I know that sounds a bit weird. My first thoughts were obviously with the family and the neighbours affected by the blast but being a typical lawyer I couldn't help wonder if the gas contractor who called to the property the day before had Public Liability insurance.
Six people were injured and it was a miracle nobody died considering the force of the explosion. Houses up to 100 metres away had doors blown out, walls demolished and windows smashed.
The owner-operator who visited the property the day before to investigate issues with the gas supply was understandably “distraught” by the events. Police and WorkSafe investigations into what happened are ongoing. Regardless of the outcome, I sincerely hope the contractor had Public Liability insurance.
Buyer beware
Most New Zealand businesses have some form of Public Liability insurance but they tend to sign the application form and chuck the policy in a drawer where it gathers dust. When you ask business owners what their Public Liability insurance covers, many of them have no idea. If you’re a business owner you need to know what your policy covers you for and what is excluded but, I get it, few people read the fine print of insurance documents.
Businesses often forget it’s the insured parties’ responsibility to ensure they have the right cover in place. It is that old cliché of ‘buyer beware’. When you’re getting insurance it’s up to you to make sure you have enough cover.
The million-dollar question
As lawyers, we remind our business clients to make sure they have Public Liability insurance. In the past, we didn't tend to ask how much cover they had but as building costs have spiralled we’ve started to ask that question.
Businesses need to insure themselves for an amount that is sufficient for the risk that could arise out of the work that they are doing. The most common level of cover for Public Liability insurance is around $1 million but a million bucks wouldn't go anywhere near to covering the amount of damage caused by the explosion in Christchurch, for example.
Of course, you can opt for a lot more cover than $1 million. It all depends on your business needs. Ask yourself this question: ‘If something happened, would the amount my business is insured for be sufficient to pay what I need to pay?’
That is what Public Liability insurance is for. It is to cover any damage caused to the general public by the business and/or its employees. Insurance pays for damages that the business owner would otherwise be liable for.
Do I need Public Liability insurance?
Any business whose activity could foreseeably cause damage to a member of the public needs Public Liability insurance. If you have employees driving around in company vehicles it’s quite possible that a member of the public could be injured by one of your employees.
If you’re a tradesman and you’re working on a café or restaurant in a busy, commercial street and you cause an explosion or a fire that damages other commercial properties, then you would be liable for considerable damages.
Insurance brokers can give you advice on the type of cover you need but your accountant and lawyer are much better placed to understand the scale of the business activity and how much you should be covered for.
Say, for example, a builder is taking on a contract for a $5 million house build, which is not unusual around here these days. If they’ve only got a million bucks of Public Liability insurance, that’s not going to be adequate to pay the damages if something goes wrong. Think about a builder working on a big subdivision and how much insurance they might need.
Public liability insurance needs to be customised to your business and what you do. If you don't have enough cover, where does that leave the business? Potentially it could be all over, red rover. We’ve seen a few situations where businesses have been badly burnt, excuse the pun, by not having adequate Public Liability insurance. I hope the Christchurch explosion is not one of those situations.
I’ve personally had to deal with a number of sad situations where the level of cover was not adequate. The owners of one particular business who were hit with a big insurance claim had to try and find the money themselves or declare bankruptcy. They were in a partnership and they hadn't protected themselves so it was very messy and very sad. Eventually, they managed to pay what they owed but it meant they essentially had to start over from scratch.
Cleaning up a mess like that is never pleasant. It’s not something we want to do. To avoid it happening to you understand what liability you are exposed to, check the amount you’re insured for is sufficient for your business and know that you are personally liable for any shortfall.
Feedback, comments and questions are always welcomed – please feel free to e-mail me on janice@aspiringlaw.co.nz or to book an appointment online visit: http://aspiringlaw.co.nz/Booking/.
Janice Hughes is a Director of, and senior legal adviser at, Aspiring Law. Please remember, this information is designed as a general guide, and should not replace specific legal advice on a particular issue.