Liability insurance and professional indemnity

If you own a business, you may be liable for damages or injuries to another person or property. Though liability insurance is optional in most cases, it is strongly recommended for businesses in all industries as the likelihood of being sued is unpredictable and potentially very costly.

The two types of liability insurance are public liability and professional indemnity, which come with several options depending on the industry you work in.

Also note that the details given are general in nature and should not be taken as financial advice. Talk to an insurance broker or an insurer to cover yourself.

Public liability

Public liability insurance helps protect you and your business against the financial risk of being found liable for negligence. Negligence is causing reasonably foreseeable harm, including:

  • injury or death, such as due to contamination in a soft drink making a customer sick
  • for some occupations, negligent advice such as saying a generator is sufficient to power a business in a blackout and it turns out it is not, causing a loss
  • nervous shock, such as emotional distress or a recognised psychiatric illnesses
  • property damage, such as negligently causing a fire
  • consequential loss, which occurs in very rare cases where a negligent act causes a third party business to lose expected revenue.

Professional indemnity

Professional indemnity insurance is a variety of insurance products that help professional cover the cost of litigation. Depending on the product, this may include liability due to:

Breaches of contract, such as:

  • not achieving the results of a contract
  • not building a boat on time
  • providing negligent advice, such as:
  • bad financial advice
  • giving wrong nutritional advice.

Mistakes providing a service, such as:

  • not auditing a company’s accounts properly
  • medical malpractice when performing a surgical procedure wrongly.
  • Giving poor legal advice.

Sometimes, professional associations offer industry-specific professional indemnity insurance, which can generally come at a significantly reduced cost.

Product liability

If you sell, supply or deliver goods, even in the form of repair or service, you may be liable if your products cause:

  • injury or death
  • property damage
  • nervous shock, such as emotional distress or a recognised psychiatric illness.

Product liability insurance covers you if any of these events happen to another business or person by the failure of your product or the product you are selling.

What to do...

  • Read more about product liability on the Australian Competition and Consumer Commission website.
  • Talk to a number of insurance companies and brokers to discuss what is best for you.
  • See information about insurance in your state or territory.
  • Read about Fair trading for information on product safety, product recalls and trade measurement and labelling.

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