Liability insurance for businesses: a guide to Public and Statutory liability insurance

If there’s one class of insurance not well understood by New Zealand businesses, it’s liability insurance. Liability insurance includes policies that can support a business in the event of being prosecuted for breaching certain Acts, or being held responsible for damage to property.

NZI National Liability Manager, Martin Stroud has a theory about why there’s less of an understanding. “In every other country, businesses plan for the possibility of being sued for causing an injury. ACC is unique in the world in removing much of that possibility. That’s created a lack of awareness and sometimes complacency among New Zealand businesses.”

What can be overlooked, he says, is that a business can still be exposed and how disruptive these issues can be if you are not protected. This could be from damage to a customer’s premises, or being prosecuted by a statutory body such as WorkSafe for a workplace injury. If that happens, the legal costs can be daunting. Business liability insurance is best considered through two of the most common policies businesses may need: Public Liability insurance, which provides cover against damage to property; and Statutory Liability insurance, which addresses prosecution brought by a statutory body.

Public Liability insurance – cover for damage to a third party’s property

“Public Liability insurance is commonly held by businesses that engage in physical work or manufacturing, or are retailers, distributors or importers of products, to name a few,” says Martin.

These businesses are looking to address the potential consequences if they damage a third party’s property. For example, an excavating firm might be thinking about cover if they accidentally damage underground infrastructure while digging a trench. Similarly, a manufacturer might need cover if their product causes damage when put to use. Importers can also be held responsible for damage caused by products they represent on behalf of overseas suppliers. Food and drink suppliers or hospitality businesses can also be exposed outside the protection of the ACC to liability for illnesses caused by food poisoning events.

Statutory Liability insurance – cover for prosecution by a statutory body

Statutory Liability insurance covers defence costs if a business is prosecuted by various statutory bodies, where the prosecution could result in a fine. Examples of legislation under which regulators/statutory bodies can bring an action include the Health and Safety at Work Act 2015, the Resource Management Act 1991, and the Building Act 2004.

Larger companies tend to be more aware of the need for Statutory Liability insurance, says Martin, but smaller operators face the same risks but lack the resources to respond adequately.

According to Martin, Statutory Liability insurance is commonly activated in situations involving a workplace death or serious injury, which often leads to WorkSafe investigations, and potentially prosecution. However, Statutory Liability insurance can also be relevant in cases where no one was harmed, but an unintentional breach of an Act occurred, which resulted in prosecution. For instance, an agricultural business using chemicals in violation of the Resource Management Act 1991, or a builder unknowingly constructing a building that fails to meet the requirements of the Building Act 2004.