By Renee Cassidy, Whitbread Claims Manager
Insurance premiums are on the rise, adding to cost pressures for many businesses. In a bid to cut costs, it is becoming common for business owners to reduce their level of insurance cover, and some are cancelling policies completely. Unfortunately, when it comes to Public & Products Liability Insurance, cancelling your cover could end up being a costly decision in the long term.
Before cancelling or lapsing your business’ Public & Products Liability insurance, consider the possible long term outcomes, and ask for specialist advice on how you can best manage the risk.
As a business, you have a duty of care to your customers, employees, and the general public. However if you are deemed negligent, causing property damage and/or bodily injury, even without intent, compensation ordered payable to claimants can be substantial and potentially harmful to the financial position of your business.
Public and Products Liability Insurance is designed to protect you and your locksmith business from the costs associated with legal action, as a result of your actual or alleged negligence that has caused third party property damage or personal injury, whilst acting in the course of your business or through your products. Read more.
A Public & Products Liability Insurance policy works on an ‘occurrence’ or ‘event’ basis.
Under an ‘occurrence’ insurance policy, you are covered for alleged acts of negligence causing bodily injury or property damage that occur while the policy is in effect. It does not matter if the coverage is in effect at the time the claim is made, it only matters that you have cover in place when the ‘event’ causing the damage/injury occurs. The benefit of occurrence coverage is that even if you cancel your policy at a future date, you will still have coverage for events that occurred in the past while the policy was in effect.
Conversely, if there is no cover in place at the time an event occurs, you can be left exposed, paying for legal defence costs and damages associated with alleged third party property damage or injury as a result of your actions.
We elaborate how this can occur in the examples below.
A locksmith installed a security camera in their client’s entranceway in January. In mid-March the camera attachment came off the wall, causing damage to an antique table and wooden flooring underneath. The locksmith was then hit with a claim from the homeowner, alleging negligence and seeking damages for repairs to the flooring and furniture restoration costs.
If the locksmith is found at fault for the way the camera was installed, they will be responsible for payment of the resultant damage to the flooring and furniture, as well as any legal fees incurred to defend the claim.
Unfortunately, the locksmith cancelled their liability cover at the end of February, before the incident occurred. With an ‘occurrence’ or ‘events’ based policy wording like Public Liability, the locksmith no longer has insurance in place to defend themselves against the claim for negligence, or pay for the third party damages. Even though they installed and performed the work in January, they had no cover in place when the actual ‘event’ of the falling camera occurred, meaning there is no insurance policy to respond to the claim.
A manufacturer designed and produced a large padlock. The shackle handle failed, disconnecting from the padlock body, causing the padlock to fall on an individual’s foot when they were unlocking it. This incident caused broken bones in their foot.
The manufacturer had closed their business permanently before this incident occurred, and had also cancelled their Products Liability Insurance cover at the time of closing.
The third party sought damages for negligence causing personal injury against the manufacturer. Unfortunately the manufacturer was not covered by insurance for the personal injury claim, as there was no products liability cover in place at the time the person was injured – when the ‘event occurred’.
The former manufacturing company business owner was left to cover the legal defence costs and damages awarded to the victim. As the business was no longer trading, the business owner was required to pay for this themselves, putting their personal assets at risk.
Without Public or Products Liability insurance, you would be left to incur these possible expenses on your own. Additionally, if your business is unable to afford these costs, or the original entity no longer exists, directors of the business can be sued personally, exposing personal asset loss and the possibility of bankruptcy.
When closing your business or deciding you cannot afford Public or Products Liability insurance cover, there is still a continuous risk – even if you completely stop working. A new ‘event’ can still take place that requires a current liability policy in force e.g. property damage from a camera fitting that failed 3 months after installation.
Public and Products Liability policies do not provide an option for run-off cover, like Professional Indemnity insurance. Therefore, it is essential when making a decision to cancel or lapse a liability policy, that you understand you may still be exposed by past work performed / products produced, and related events that occur. To avoid this situation, speak to your insurance broker on how you can appropriately manage the risk.