Commercial liability insurance

What public and products liability insurance is designed to address

Public liability insurance is generally intended to respond to certain legal liabilities for personal injury or property damage arising from business activities, subject to the policy wording. Products liability generally relates to certain injury or property damage arising from products sold, supplied, manufactured, imported, repaired or distributed by the insured.

The actual scope of cover varies between insurers. Definitions, exclusions, territorial limits, deductibles, sublimits and endorsements can materially affect how a policy responds. Businesses should ensure their declared activities and products accurately reflect what they do.

Who may need liability insurance?

Public and products liability insurance can be relevant across a wide range of industries, including manufacturers, wholesalers, importers, retailers, property owners, warehousing and logistics businesses, hospitality operators, professional service firms with premises exposures, contractors and many other commercial organisations.

For manufacturers, importers and wholesalers, insurers will often focus closely on the type of products supplied, end use, customer industries, quality-control processes, overseas sourcing, exports and whether products are incorporated into other goods or used in higher-risk applications.

Public liability exposures

Public liability exposures can arise from customers or visitors attending premises, work undertaken away from the insured premises, accidental damage to third-party property, loading and unloading activities, events, displays, tenancy obligations and other operational activities. Cover depends on the circumstances of the claim and the policy wording.

Products liability exposures

Products liability risks may arise from defects, contamination, incorrect assembly, labelling issues, component failure, imported products, products incorporated into larger systems or machinery, and other alleged product-related injury or property damage. A policy does not automatically cover every cost associated with a defective product.

Product recall, replacement, repair, withdrawal, rectification or loss of use can be treated differently from third-party injury or property damage and may require separate or specialist insurance. These exposures should be reviewed rather than assumed to be included.

Information insurers commonly require

• Full description of business activities
• Annual turnover and projected turnover
• Turnover split by activity, product or business division where relevant
• Details of products manufactured, imported, wholesaled, distributed, installed or repaired
• Countries of manufacture and countries where products are sold
• United States and Canada exposure, if any
• Use of subcontractors, labour hire or contractors
• Wages and employee numbers
• Quality assurance and product testing arrangements
• Claims history and known incidents or circumstances
• Current insurer, limits, deductibles and policy conditions

Manufacturers, importers and wholesalers

These businesses can require more detailed underwriting because the insured may have responsibility for goods manufactured by others or supplied under its own name. Imported goods can also create additional exposures where recourse against an overseas manufacturer may be difficult.

For complex risks, a clear underwriting submission can help insurers understand the product, its intended use, customer base, sales territories, quality controls and contractual arrangements. This is particularly important for higher-risk manufactured products, industrial equipment, electrical goods, chemicals, food products and specialist components.

Limits of liability

Common liability limits in the Australian market include $10 million and $20 million, although the appropriate limit depends on the business, contractual requirements, customer expectations and insurer appetite. Some policies apply an aggregate limit for products liability while public liability may operate on an any-one-occurrence basis. The policy schedule and wording should be checked carefully.

Common exclusions and restrictions to review

Liability policies can contain exclusions or restrictions for particular activities, products, occupations, territories or contractual liabilities. Depending on the business, areas requiring attention may include professional advice, faulty workmanship, product recall, pollution, asbestos, cyber events, aviation or marine products, high-risk work, underground work, exports to the USA or Canada and contractual indemnities.

Not every exclusion will apply to every policy. The relevant wording, schedule and endorsements should be reviewed for the insured’s actual activities.

Contractual insurance requirements

Customers, landlords, principals and suppliers may specify liability insurance requirements in contracts. Insurance can be reviewed against those requirements, but an insurance policy should not be assumed to satisfy every contractual obligation. Where legal interpretation of a contract is required, businesses should obtain legal advice.

Public and products liability insurance review

Mercantile can assist with new placements, renewals and more difficult liability risks, including businesses that have complex products, unusual activities, higher limits, claims history, overseas exposures or limited insurer appetite.

Our role is to present the risk to suitable insurers, compare available terms and help clients understand material differences in limits, deductibles, exclusions, endorsements and policy conditions.

Frequently asked questions

Does public liability cover faulty workmanship?

Not automatically. Liability policies may respond to certain resulting third-party injury or property damage, but the cost of correcting defective work itself may be excluded or otherwise restricted. The applicable wording must be reviewed.

Does products liability cover product recall?

Usually not as a standard assumption. Product recall and withdrawal costs may require specialist cover. Availability depends on the business and insurer underwriting.

Are imported products covered?

They can be, but imported products must be accurately disclosed. Insurers may ask about country of origin, product type, quality controls, sales territories and the insured’s contractual arrangements with manufacturers and suppliers.

Can higher-risk businesses obtain liability insurance?

Often yes, depending on the activity, claims history, risk controls and insurer appetite. Higher-risk industries may require a more detailed submission and access to specialist liability markets.