How to Navigate Products & Public Liability Insurance Indemnity Limits
While most organisations make the quality of their products and services a top priority, there is always the risk that a mistake might be made. Whether it be a faulty product or injury to a member of the public on company property, it is vital to ensure that your organisation has the correct level of cover for these potential liability claims.
Products and Public Liability can be offered separately but are usually offered as part of one policy. Both offer cover in the event a third party suffers property damage, disease, illness, injury or death due to your business’s goods, services or activities. Liability cover both covers the cost of compensation payable to the claimant as well as any potential legal fees up to your indemnity limit.
Due to the wide range of incidents that can occur, it is crucial to set accurate limits of indemnity to ensure you meet customer’s needs. You must be aware of potential exclusions or conditions in your policy and engage in proper risk management strategies to avoid potential liabilities.
Firstly, you need to decide if your organisation needs cover. For most businesses, the answer is usually yes but you should consider a products/public liability policy if any of the following are true:
- You manufacture products
- You sell or hand out products with your organisation name or brand on them
- You import products from outside the EU for UK sales
- You repair or repurpose products
- You sell products for which you cannot identify the manufacturer, or the manufacturer has gone out of business
- You or your employees work at client sites, on public property or within a client’s home
- Your business organises off-site events or activities that members of the public attend
- You or your employees interact with third parties while working or providing services
Once you have decided to purchase public/products liability cover, it is important to consider your level of indemnity. This means the maximum amount of compensation that your insurer will offer you in the event of a claim.
Choosing the right level of indemnity is important because this will determine whether or not your organisation is able to meet customers’ needs, maintain financial stability and protect their reputation in the event of a liability dispute.
Consider the following when selecting the level of indemnity for public liability:
- What is the value of your premises? This includes if there are multiple locations being covered under one policy. This is important as more expensive properties or multiple premises will typically require higher indemnity limits.
- How many people are in the surrounding areas around your premises? Are you in a town or the middle of nowhere? How many people face the risk of harm on your organisation’s premises such as customers or members of the public? For instance, a business that has a large number of customers on their property should consider higher indemnity limits.
- What is the nature and the proximity of the area surrounding your organisation’s property?
- Does the nature of your organisation’s activities have the potential to cause harm?
- Does your business have any risk management programmes in place to protect against public liability claims?
Meanwhile, for products liability indemnity limits, you should consider:
- Do your products face North American exposures, as this region is likely to produce more (and greater) claims.
- Who designs your products? Who provides your raw materials? Who manufactures your products and transports them? A partner organisation with lapse risk management policies can create liability claims for your organisation.
- Does your organisation have proper risk management systems in place itself?
- Do you have a rigorous programme that tests and checks products for potential faults of damage?
- How much would your worst case scenario cost you?
- Do any of your contracts specify that you should have a minimum level of cover?
Another aspect that should be considered when selecting your indemnity limit is that in the case of products liability cover: your indemnity limit is an aggregate limit which means that your £5 million (for example) of cover is the maximum you can claim for the duration of the policy.
This is because in a products liability claim, if a faulty product affects multiple people and leads to a series of claims, the insurer would pay all claims for that period of cover up to the limit which is typically between £1 million and £5 million.
Meanwhile, in the event of a Public Liability claim, the insurer would pay up to the limit on an 'any one occurrence’ basis. For instance, if you had a large organisation and had 2 separate public liability claims in one year, the insurer would pay up to the limit (at least £2 million) on each claim.
Finally, be sure to take note of any exclusions or conditions the insurer includes within the policy. Potential exclusions could include liability claims for products exported to certain countries, while possible conditions could include that your organisation keeps appropriate documentation on risk management.
If you would like more information or are ready to get your free quote, visit our website or call us directly on 0330 124 0730.