Liability

Are you adequately insured for third party and product liability?

The availability of appropriate and affordable insurance cover is currently a very hot topic for business, as it is for all sectors of society.  Adequate and affordable insurance cover is becoming harder to obtain as insurers are faced with increasing claims, whether caused by increasingly cataclysmic weather events or the ever escalating costs of reparations, particularly in a post-COVID world.

You should carefully consider whether your insurance cover is adequate and, to the extent that it is not, the options available to mitigate against this risk.  This may not only include obtaining better insurance cover.  It may also mean engaging in risk reduction measures that reduce the likelihood of damage to your business occurring in the first place.

If you have insurance, you must ensure that you engage commercially in a manner that is consistent with your insurance obligations. Also, if you are taking on a liability, such as under a lease, you must ensure that your insurance adequately covers that liability.

Do you have adequate systems in place to avoid public and product liability?

The failure to foresee and avoid risk is often a consequence of a failure or complete absence of appropriate systems, procedures and processes. This failure generally occurs because a business does not take the time to think through the consequences of its actions and to develop a plan to put in place systems, procedures and processes to minimise risk or, at least, avoid the consequences of risk.

Even if there is a system in place, often a lack of enforcement of that system can be the reason for a risk arising and damage being caused. Insurance premiums are often reduced for organisations with demonstrably good risk management systems.

You may also be able to avoid or reduce your risks contractually. A well written contract with your suppliers, contractors and customers can greatly improve your risk profile.

Taking the time to plan is the key. We can help you in that regard, as we can with providing advice on your potential third party liabilities.

Do you understand how such liability might arise?

Third party and product liability risk generally arise as a result of the operation of three areas of law, namely:

1. Consumer protection legislation
2. Contractual obligations
3. Negligence

Consumer Protection Legislation

There are a number of pieces of legislation that may affect your liability risk, particularly in the area of product liability. It is essential that you are aware of the risks associated with your business operation and the products that you create and as to how those risks may be minimised.

Consumer protection legislation in this country is now quite developed. In essence, the legislation protecting consumer interests requires manufacturers, wholesalers, suppliers, retailers and importers to take responsibility for the failure of products to meet certain standards.

The impact of this legislation cannot be underestimated. There is not a single business operation that is not currently or potentially affected by the operation of such legislation.

Non-compliance with consumer protection legislation can be fatal to a business operation.

Without wishing to minimise the importance of all of this legislation, it is difficult to think of one that is more important or pervasive than the Competition and Consumer Act. This Act deals with a wide range of business dealings, such as;

• restrictive trade practices
• unconscionable conduct
• consumer protection
• liability of manufacturers and importers for defective goods
• price exploitation
• resale price maintenance.

It is usually impossible to restrict the effect of legislative obligations. However, it is important to ensure that you restrict your liability only to those things that you cannot avoid. 

Contracts and legal liability

Contracts can be oral, in writing or implied. They can in fact be any combination of these.

So, when people buy products from you, they generally do so on the basis of an oral, written or implied contractual term that the products or services that you are providing to them are of a particular quality or suitability. 

There may be specific contractual undertakings given by you with respect to your products arising from the particular type of industry you are involved in, such as that the products are free from a particular disease or do not contain certain substances. 

Whatever the precise contractual terms, you must understand your contractual obligations and ensure that they facilitate your risk reduction objectives, however they arise. You should also, to the extent possible, ensure that contractual obligations and risks that you assume are consistent with, and protected by, your insurance.

You also need to know what steps you may be able to take to generally minimise and avoid your liability risks, for example by the use of a disclaimer or an acceptance of risk document.

Also, significant risk can arise from the failure to manage your contractual obligations in a timely and proper manner.  Contract Lifecyle Management software is available to manage your contracts digitally.

What if I act negligently?

In causing damage or loss to a third party, it may be that you have acted negligently and can be sued by the person suffering loss on the basis of that negligence. Once again, you need to understand the extent of your risk and how you might go about minimising that risk.

If a risk is foreseeable and avoidable, you may well be responsible for damage caused by your negligent actions. The failure to foresee and avoid risk is generally a consequence of a failure or complete absence of appropriate systems, procedures and processes. This failure generally occurs because a business does not take the time to think through the consequences of its actions and to develop a plan to put in place systems, procedures and processes to minimise risk or, at least, avoid the consequences of risk.

Even if there is a system in place, often a lack of enforcement of that system can be the reason for a risk arising and damage being caused. 

Insurance premiums are often reduced for organisations with demonstrably good risk management systems.

Taking the time to plan is the key. We can help you in that regard, as we can with providing advice on your potential third party liabilities.

Employers liability

In any litigation, it stands to reason that the injured person will look for the party with the deepest pockets. Except in very rare cases, this is not likely to be the employee! It is far more likely to be you.

You are responsible for the actions of your employees whilst they are engaging in their employment with you in so far as any third party is concerned. You may also be responsible for the actions of your subcontractors.

You cannot avoid the effect of vicarious liability except by ensuring that your employees and subcontractors do not act in such a way as to create risks that might expose you to liability.  This is an issue of training, planning and putting in place the appropriate systems, procedures and processes.