Beware of signing contracts that leave you exposed for public liability

February 2nd, 2010 by anne

Most businesses wisely take out Public Liability insurance. This type of insurance protects the business against the legal liability to pay compensation to another for bodily injury or damage to property arising out of an occurrence in connection with the business.

But where things can get ‘sticky’ is when a business owner signs a legally enforceable contract that adds extra liability risk or exposure that their public liability insurer may not have been informed about nor approved.

What types of situations do we mean by this?

A common example is the signing of a property lease. It is typical for the lease to include a provision that protects the landlord against a liability claim within the leased portion of the premises. That is, the landlord is not exposed to pay compensation unless it is of the landlord’s making.

But in some cases, certain landlords are extending the tenant’s liability to include other areas not under the direct control of the tenant.  For example, a customer of the tenant may park their vehicle within the building’s car park and, whilst on route to the tenant’s business, suffer an injury.  Clearly, the injury occurred in an area not under the control of the tenant. Under the terms of the lease however, the tenant becomes liable as the customer’s purpose in attending the building was to visit the tenant’s premises.

Unless the tenant’s insurer was advised of this additional liability exposure and had agreed to insure the additional risk, a claim under the tenant’s liability insurance would not be valid.

All public liability policies exclude claims where the policyholder has accepted liability in circumstances where liability would not normally have attached in the course of the policyholder’s business.  The actions of a policyholder accepting liability under a signed contract will more likely than not, trigger a policy exclusion meaning that indemnity is denied.

In the course of running their business, many business owners sign various types of legally enforceable contracts. In some cases, they may have unwittingly accepted additional risk exposure. Contracts can include those signed with suppliers, customers, employees, landlords and more. 

There is a tendency often excused by the lack of time and cost not to refer the contract to a lawyer for review. Many business proprietors simply skim through the pages of contract legalese (if at all) and just sign on the dotted line. In doing so, the business owner could well be leaving their company exposed to a public liability claim that is not covered under their policy. And this can be an incredibly expensive error with crippling effects on the business’ viability.

So what to do? We recommend that you always ask your lawyer to review any legally enforceable document you sign, to identify if you are accepting any risk of exposure to a financial loss. If any risks are identified, it is important to determine if the risks are insurable by referring the contract to your insurance broker. Sometimes, the additional risk is unwarranted and it is not unusual to have the offending clauses removed or altered. In any event, the extra risk assumed is often insurable by payment of an additional premium  once you have advised your public liability insurer and had the situation assessed by them.

Another area where businesses can strike difficulties is when they engage contractors to work in or around their premises, including those engaged via labour hire entities.

If a contractor is injured on your premises, this may trigger a workers’ compensation claim against their employer (the labour hire entity). But often, workers’ compensation insurers will subsequently seek recovery of the outlays they have made if the injury arose from unsafe work premises or contributory negligence on your part. The injured party may also make a claim directly against you. Many public liability insurers are denying claims of this nature where they have not been advised that an additional risk has been assumed as a result of the contractors being engaged to work on the site.

It is worth noting that cleaning and gardening contractors fall within this category.

For your protection, it is important to discuss with your insurance broker, the insurance implications of any contracts you enter into.

In most cases, cover can be arranged so long as you have provided your insurer with details of the contracts. In this way, they can assess the risks involved and determine if an additional charge is required to cover the extra exposure.

Enjoy clear peace of mind when it comes to your insurance protection.

Contact us to find out more about ensuring that the contracts you enter into do not jeopardise your public liability insurance.