Types of Liability Insurance in Australia: Public Liability, Professional Indemnity and Product Liability Explained

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

Liability insurance is a broad term, but not all liability cover responds to the same type of claim. For Australian small business owners, sole traders, contractors and professionals, the key distinction is usually between public liability insurance, professional indemnity insurance and product liability insurance.

Understanding these types of liability insurance in Australia can help you ask better questions when comparing policies, reviewing contracts or discussing your business risks with an insurer or broker. This article provides general information only and does not take into account your objectives, financial situation or needs. Policy availability, pricing, limits and claims outcomes depend on individual circumstances, the insurer's criteria and the policy wording.

What does liability insurance mean?

Liability insurance is designed to help protect a business if another person or organisation claims the business is legally responsible for loss, injury, damage or financial harm. Depending on the type of policy, it may help cover legal defence costs, settlements or compensation payments, up to the policy limit and subject to exclusions.

The important point is that liability insurance usually deals with claims made by others against your business. It is different from cover for your own physical assets, such as business property insurance, and different from statutory workers compensation arrangements for employees.

Because businesses create different kinds of risk, liability cover is divided into different categories. A café, builder, consultant, manufacturer and online retailer may all need liability protection, but the risks they face are not identical.

Quick comparison: the main business liability insurance types

Public liability insurance explained

Public liability insurance is one of the most commonly discussed forms of business liability cover in Australia. It generally relates to claims by third parties for personal injury or property damage arising from your business activities.

A third party may include a customer, visitor, supplier, client, contractor or member of the public. It usually does not mean your employees, whose work-related injuries are generally dealt with through workers compensation laws and state or territory schemes.

Public liability insurance may be relevant if your business:

• has customers, clients or visitors at a premises;
• works at client sites, homes, commercial properties or public locations;
• attends markets, events, exhibitions or trade shows;
• uses tools, equipment or materials that could damage someone else's property;
• carries out physical work that could cause injury or damage if something goes wrong.

Examples can include a customer slipping at a shop, a tradesperson accidentally damaging a client's flooring, or equipment creating a trip hazard at a job site. Whether a claim is covered depends on the specific facts, policy wording, exclusions and insurer assessment.

Public liability insurance is not automatically mandatory for every Australian business under one national rule. However, it is often required by commercial landlords, event organisers, principal contractors, councils, licensing arrangements, industry bodies or client contracts. In practical terms, many businesses need it to operate, tender for work or access certain sites.

For a broader overview of liability cover for Australian businesses, you can visit Liability Insurance Australia.

Professional indemnity insurance explained

Professional indemnity insurance is different from public liability insurance because it focuses on professional services, advice or expertise rather than physical accidents alone. It is designed for claims alleging that a business or professional caused loss through negligence, errors, omissions, misleading statements or breach of professional duty.

This cover can be relevant even if your work is mostly online, office-based or low-risk from a physical injury perspective. A consultant may rarely create a trip hazard, but their advice, reports, specifications or decisions may still expose them to allegations of financial loss.

Professional indemnity insurance may be relevant if your business:

• provides advice, recommendations, reports or strategies;
• designs systems, buildings, processes, marketing material or technical solutions;
• manages client data, projects, compliance tasks or professional documentation;
• holds professional qualifications or operates under an industry code;
• has contracts requiring professional indemnity cover.

Common examples include a client alleging that an accountant's error caused a tax issue, an IT consultant's advice led to business interruption, or a design professional's specification contributed to a costly defect. The cover may respond to legal defence costs and damages where covered by the policy, subject to limits, excesses and exclusions.

Professional indemnity policies are often written on a claims-made basis. This means the timing of when the claim is made and notified can be very important. Businesses should pay close attention to retroactive dates, continuity of cover and run-off cover if they stop trading, retire, sell the business or cease offering a professional service.

Product liability insurance explained

Product liability insurance relates to claims that a product caused personal injury, illness or property damage. The product does not necessarily have to be manufactured by your business for risk to exist. Importers, retailers, wholesalers, distributors, repairers and online sellers may also be exposed depending on their role in the supply chain.

Product liability insurance may be relevant if your business:

• manufactures or assembles goods;
• imports products into Australia;
• sells products in-store, online or at markets;
• supplies food, beverages, cosmetics, tools, equipment or consumer goods;
• repairs, modifies, packages or labels products.

Examples can include a food product allegedly causing illness, an electrical item allegedly causing property damage, or a consumer good allegedly causing injury because of a defect, warning issue or failure. Product liability may be included with some public liability policies, but it should not be assumed. The wording, definitions and exclusions need to be checked carefully.

Businesses that import goods should be particularly careful. Even if a product was made overseas, Australian customers may still pursue the local business that supplied or imported it. Product standards, recall obligations, contractual warranties and supply chain documentation can all affect the broader risk picture.

Public liability vs professional indemnity: what is the difference?

The simplest way to compare public liability vs professional indemnity is to ask what kind of harm is being alleged.

Public liability is generally about physical injury or property damage to third parties connected with your business operations. Professional indemnity is generally about financial loss or other harm caused by professional advice, services, errors or omissions.

For example, if a client visits your office and slips on a wet floor, that is more likely to be a public liability issue. If the same client claims your professional advice caused them to lose money, that is more likely to be a professional indemnity issue.

Some incidents can involve both physical and professional elements. For example, a design error could contribute to property damage, or a professional service could be connected with a physical outcome. In these cases, the relevant policy response depends on the wording of each policy and how the claim is framed.

When might a business need more than one type of liability cover?

Many businesses do not fit neatly into one category. A single business can have premises risk, professional advice risk and product risk at the same time.

For example:

• An electrician may need public liability for property damage or injury at job sites, and may also need other specialist cover depending on licensing, contracts and the nature of the work.
• A management consultant may need professional indemnity for advice-related claims, and public liability if visiting client sites or hosting workshops.
• A food business may need public liability for customer injuries at premises and product liability for food-related illness allegations.
• An online retailer may have limited face-to-face exposure but still need to consider product liability if supplying goods to customers.
• An engineer, designer or architect may need professional indemnity because clients rely on their professional skill, as well as public liability for site visits or office risks.

The right mix depends on what your business does, who you deal with, where you operate, what contracts you sign and what losses could realistically arise.

Other liability-related covers to know about

Public liability, professional indemnity and product liability are the core categories for many Australian businesses, but they are not the only liability-related covers. Depending on your circumstances, you may also hear about:

• Management liability insurance: cover that may respond to certain claims against directors, officers or the business involving management decisions, employment practices or statutory liabilities, subject to policy terms.
• Cyber liability insurance: cover for certain costs and liabilities arising from cyber incidents, privacy breaches, data loss or network security events.
• Employers liability or workers compensation-related cover: if you employ workers, you generally need to understand workers compensation obligations in the relevant state or territory. Requirements and arrangements differ across Australia.
• Contractual liability extensions: some contracts require specific insurance clauses, named insured arrangements or indemnities. These should be reviewed carefully because not all contractual liabilities are covered automatically.

These covers should not be treated as interchangeable. Each policy has its own purpose, definitions, exclusions and claims conditions.

Is liability insurance mandatory in Australia?

There is no single answer for every business. Some forms of insurance are legally required in certain situations, while other insurance requirements arise through contracts, leases, licences, tenders or professional memberships.

Public liability insurance is not universally compulsory for every business, but it may be required to lease premises, enter a worksite, hold an event, perform government or commercial contracts, or operate in certain regulated settings.

Professional indemnity insurance may be required for some professions under licensing, professional association rules, client contracts or industry standards. The rules vary by profession and jurisdiction.

Product liability insurance may not be compulsory for every product seller, but product-related claims can be significant. Businesses involved in manufacturing, importing or supplying goods should consider the risk carefully and seek guidance where necessary.

What liability insurance typically does and does not cover

Although each policy is different, liability insurance commonly focuses on covered legal defence costs, settlements and compensation arising from insured claims. However, exclusions can significantly affect whether a claim is accepted.

Common exclusions or limitations may relate to:

• intentional or deliberate acts;
• known circumstances that existed before the policy started;
• contractual liabilities that go beyond ordinary legal liability;
• employee injuries covered by workers compensation arrangements;
• faulty workmanship, product recall costs or rectification costs, depending on the policy;
• professional services excluded under a public liability policy;
• claims outside the policy period, territory or scope of business activities described to the insurer.

Always read the Product Disclosure Statement, policy schedule and any endorsements. If something is unclear, ask the insurer or broker to explain how the wording applies to your business activities.

How insurers may assess liability insurance premiums

The cost of liability insurance depends on a range of factors. These may include your industry, business activities, annual turnover, number of employees or contractors, location, claims history, policy limits, excess, qualifications, risk controls and whether you import, manufacture or supply products.

A business with high foot traffic, hazardous work sites, complex professional advice or higher-risk products may be assessed differently from a business with limited public interaction and lower-risk services. Premiums and policy terms are determined by insurer criteria and can vary between providers.

If you are reviewing costs, it can help to understand the factors that influence liability premiums. For more detail, see our guide to key factors influencing liability insurance premiums.

How to choose between business liability insurance types

Choosing the right liability cover starts with understanding your business activities rather than simply choosing a familiar policy name. Consider the following questions:

• Do customers, suppliers, contractors or members of the public visit your premises?
• Do you work at client sites, homes, commercial properties or public spaces?
• Do you provide advice, designs, reports, recommendations or technical expertise?
• Do you manufacture, import, sell, distribute, install, repair or modify products?
• Do your contracts specify minimum insurance limits or particular policy types?
• Are you subject to licensing, professional body or industry insurance requirements?
• Could one claim create legal costs or compensation expenses your business could not comfortably absorb?

It is also useful to review how your business has changed. New services, new products, larger contracts, more staff, interstate work or online sales can all change your risk profile.

Using a broker or adviser to compare liability cover

Liability insurance policy wording can be technical, and two policies with similar names may operate differently. A broker may help identify relevant cover types, compare policy features and explain exclusions or limits. They can also help you prepare information insurers commonly request, such as business activities, turnover, contracts, qualifications and claims history.

If you want general support when comparing options, you can explore the broker information available on this site. Any recommendation or policy decision should be assessed against your own circumstances and the relevant policy documents.

What to do if a liability incident occurs

If something happens that may lead to a liability claim, act promptly and carefully. Notify your insurer or broker as soon as practical, follow the policy's claims conditions and avoid admitting liability or agreeing to compensation before the insurer has reviewed the matter.

Good records can make a significant difference. Depending on the incident, keep details such as:

• the date, time and location of the incident;
• names and contact details of people involved or witnesses;
• photos of the area, product, equipment or damage, where appropriate;
• copies of correspondence, invoices, contracts or instructions;
• incident reports, maintenance logs, training records or safety procedures;
• the product batch, supplier or import documentation for product-related claims.

The insurer will assess the claim against the policy wording and circumstances. Claims can take time, particularly where liability is disputed, multiple parties are involved or expert reports are needed.

Key takeaways

The main types of liability insurance in Australia differ because they respond to different risks. Public liability insurance generally concerns third-party injury or property damage. Professional indemnity insurance generally concerns professional advice, services, errors or omissions. Product liability insurance generally concerns injury or damage caused by goods your business makes, imports, sells or supplies.

Many businesses need to consider more than one type of liability cover. The right approach depends on your industry, contracts, legal or professional obligations, products, services and risk profile. Before choosing a policy, review the policy wording, understand the exclusions and consider seeking professional guidance if your risks are complex.

Published: Friday, 7th Jun 2024
Author: Paige Estritori