Understanding Liability Insurance: When you’ll need it and what it can cover

You know that moment, it plays out in slow motion: your previously parked shopping trolley picks up speed and crashes into the most expensive car in the carpark, or your toddler lifts an expensive vase off the shelf just as someone steps back and knocks into them… if you’re wondering about liability insurance, these are the moments you need it!

So, what is liability insurance, what does it cover and is it included in my policies already? These are the all important questions we’ll discuss in this blog.

What is Legal Liability?

Legal liability means you’re responsible for covering costs if you accidentally cause harm or damage to someone, their property, or their reputation. Having legal liability insurance is like having a safety net—it helps protect you from having to pay out of pocket if something goes wrong because of your actions.

In New Zealand, ACC generally covers accidental personal injuries, however there are a few exceptions. ACC doesn’t protect against injury for those businesses who export products overseas where the harm occurs outside of New Zealand. Nor does it provide cover for injuries not caused by accidents, such as illnesses or food poisoning.

Types of Liability Insurance

Vehicle Liability Insurance is also known as third party insurance. If you’re in a car accident, vehicle liability insurance can pay for the damages and costs for vehicles other than your own. You can buy third-party insurance on its own to cover the cost of damaging other people’s property, or as part of comprehensive insurance, which also covers your own vehicle. In many countries, third-party insurance is mandatory, but in Aotearoa, it is optional.

Home and Contents Liability Insurance protects you financially if you’re found responsible for causing injury to someone else (for injury not covered by ACC) or damaging their property, either in your home or elsewhere.

• Damage to others’ property: If you accidentally cause damage to someone else’s property, like a tree in your garden falling on a neighbor’s fence, your liability insurance can help pay for repairs or replacement.
• Damage Caused Away from Home: If you accidentally damage someone else’s property while you’re not at home, like your dog chewing on their furniture, your liability coverage can help pay for the damages.

Small Business Liability Insurance protects your business from financial losses if someone claims that your business caused them harm. This harm could be something like an injury (for those not covered by ACC), property damage, or even reputational damage. Small business liability insurance includes Public and Products Liability Insurance.

• Public Liability protects you against incidents that occur due to your business performing its day-to-day activities. For example, a plumber who bursts a pipe which then floods a house, could be liable for the repairs required.
• Products Liability covers you for incidents that occur as a result of your business’ products, often after they’ve been purchased or handed over. For example, if an electrical product has a fault and causes a house fire, the business could be liable for damages.

Limits and Exclusions:

Policies may include limits on liability and so it is important to check these amounts to ensure you are insured adequately for your personal or business circumstances.

There will also be exclusions included in liability insurance policies. The following are some of the most common exclusions:

Vehicle Liability

• Damage to your own vehicle (this is covered by comprehensive insurance, not liability).
• Intentional damage or injury.
• Driving without a valid licence or under the influence of drugs/alcohol.
• Using the vehicle for commercial purposes if not disclosed to the insurer.

Home and Contents

• Damage to your own property or belongings.
• Liability from running a business from home unless specifically covered.
• Liability for incidents involving intentional acts or criminal behavior.
• Liability arising from certain dog breeds or other high-risk pets, as specified by the insurer.

Small Business

• Damage to your own business property (this is usually covered under a separate property insurance policy).
• Employee injuries.
• Professional errors or omissions (covered by professional indemnity insurance).
• Fines, penalties, or punitive damages.
• Claims related to known defects in products or services.
• Acts of terrorism or war may also be excluded, depending on the policy.

Always review the specific terms and conditions of any insurance policy to understand the exact limits and exclusions, as these can vary widely between different insurers and policies.

Could My Current Policies include Liability Insurance?

Liability coverage is typically offered as a standard component in most home and contents insurance policies, but it’s important to confirm this with your specific insurer. In most cases, comprehensive car insurance policies do include third-party liability coverage. If you are looking for small business liability insurance, this is usually a stand alone policy, although it can be included in a business insurance package.

If you’d like to understand liability insurance better, or would like a quote for vehicle, home and contents or small business insurance, our highly knowledgeable team of IFAA Advisors would be happy to oblige. Click here to find your nearest IFAA adviser.