What is Liability Insurance and Why Does Your Business Need It?

No matter how well you run your business, things can go wrong. A customer slips on your premises. A product causes harm. A client claims your advice cost them money. In any of these situations, your business could be held legally responsible and the costs can be significant.

Liability insurance is what stands between you and those costs. It covers legal fees, compensation payouts and the expenses that come with defending a claim. Without it, you're covering all of that yourself.

Here's what you need to know.

What is Liability Insurance?

Liability insurance protects your business against claims made by third parties. A third party is anyone outside your business, customers, members of the public, clients or suppliers who suffer loss, injury or damage and hold your business responsible.

There are a few different types of liability cover and understanding which ones apply to your business is important.

Public Liability Insurance

Public liability insurance covers claims made by members of the public or customers who are injured or whose property is damaged as a result of your business activities.

If someone slips and falls at your premises, if your work causes damage to a client's property or if a passerby is hurt during a job you're carrying out, public liability covers the legal costs and compensation involved.

It's one of the most widely held types of business insurance in New Zealand and in many industries it's a requirement before you can operate, lease a space or win a contract.

Product Liability Insurance

If your business manufactures, sells or supplies products, product liability insurance covers you if one of those products causes injury or damage to someone.

This applies whether you made the product yourself or sold it as a retailer. If your name is on the transaction and the product causes harm, you can be held liable. Product liability is often included within a public liability policy but it's worth confirming your cover explicitly addresses it.

Professional Indemnity Insurance

Professional indemnity sits within the liability family but specifically covers businesses that provide advice, expertise or professional services. If a client suffers financial loss and claims it was caused by your advice, your work or an error you made, professional indemnity covers your legal defence and any compensation awarded.

This is essential for consultants, accountants, architects, lawyers, IT professionals, marketers and anyone whose work directly influences their clients' outcomes.

Employers' Liability Insurance

While public liability covers people outside your business, employers' liability covers claims made by your own staff. In New Zealand, ACC handles most workplace injury claims but it doesn't cover everything. If an employee takes legal action against your business for negligence or for a condition not covered by ACC, employers' liability is what protects you.

Do You Actually Need It?

The short answer is yes. Almost every business does.

If you interact with customers or the public in any way, you need public liability. If you sell or supply any kind of product, you need product liability. If you give advice or provide professional services, you need professional indemnity. If you have staff, you need employers' liability.

The only real question is what combination of cover is right for your specific business.

How Much Cover Do You Need?

Liability claims can be expensive. Legal fees alone can run into tens of thousands of dollars before any compensation is factored in. Serious injury claims or large commercial disputes can go much higher.

Most businesses in New Zealand hold public liability cover of at least $1 million but depending on your industry, client contracts or the scale of your operations, you may need more. A broker can help you work out what's appropriate.

Final Word

Liability insurance isn't about expecting the worst. It's about making sure that if something does go wrong, it doesn't take your business down with it. One claim without adequate cover can wipe out years of work.

Talk to the team at Long Burroughs to make sure your liability cover is right for your business. We'll make sure you're protected where it counts.