Solving the Public and Products Liability Puzzle

In the realm of public and products liability, businesses often find themselves navigating a complex landscape. Understanding the nuances of liability coverage, risk management, and emerging challenges is crucial for overall risk mitigation and achieving desired claim outcomes. Here, we delve into real-world examples and insights to help unravel the puzzle of public and products liability.

UNDERSTANDING ADVERTISING AND MARKETING INDUSTRY CLAIMS

The advertising and marketing industry can present unique liability challenges. One notable case involved a promotional event which featured a large inflatable cucumber that disintegrated unexpectedly.

Several critical lessons emerged from this incident:

Coverage Determination

It’s essential to differentiate between third-party property and the insured’s property. In this case, the inflatable cucumber, manufactured in Asia and transported for the promotion, was classified as third-party property. This classification influenced the claim assessment under the policy’s goods in care, custody, or control provisions.

Risk Management

Comprehensive risk management plans are vital. Despite a risk management plan being in place, the promotion faced issues due to strong winds, which were not adequately accounted for in the plan. Businesses must ensure that their risk management strategies are thorough and reflect  circumstances and scenarios that are relevant to the operational risk of the business.

Watercraft Use

Liability policies often have exclusions for watercraft above certain sizes. The inflatable cucumber, tethered by vessels, fell under these exclusions. However, the policy in question had a write-back clause allowing coverage for watercraft operated by independent contractors, showcasing the importance of understanding policy specifics.

The takeaway is clear, businesses must have detailed risk management plans and a thorough understanding of their policy cover to manage potential liabilities effectively.

CHALLENGES WITH CONTRACTOR AND SUBCONTRACTOR SERVICES CLAIMS

Another significant area of challenge are claims involving contractors and subcontractors. Increasingly, businesses are facing issues where contractors deny responsibility for claims, particularly those involving property damage.

Issues with Contractor Claims

Contractors and their insurers frequently deny responsibility, leading to prolonged recovery processes and increased costs for the insured. This is particularly problematic for smaller property damage claims, where the costs of formal recovery actions can be prohibitive.

Solutions for Contractor Claims

Service agreements that include a principal’s indemnity clause can be an effective strategy. This clause allows the insured to claim directly under the contractor’s insurance, bypassing the need for the contractor to lodge the claim themselves. Such agreements can streamline the claims process and reduce financial burdens on the insured.

This segment underscores the importance of robust contractual agreements and understanding the implications of using subcontractors to avoid prolonged and costly disputes.

NAVIGATING POLLUTION AND ENVIRONMENTAL LIABILITY

Environmental liability is an area with increasing public scrutiny and stringent penalties. Recent incidents highlight the significant impact of pollution events and the complexities involved in managing these claims.

Public Perception of Environmental Liability

Growing public concern and media attention on environmental issues are driving stricter regulations and higher fines. For instance, a toxic liquid spill that led to contamination of public waterways demonstrated the urgency and high costs associated with such incidents.

Policy Coverage

Standard liability policies have limited coverage for pollution events, typically covering only sudden, unintended and unexpected incidents that occur in their entirety at a specific time and place. Businesses must be aware of these limitations and consider additional coverage options if they have significant pollution exposures.

Brokers with clients that have substantial pollution exposures may want to consider discussing their client the suitability of Environmental Impairment Liability (EIL) policies for more comprehensive coverage. Understanding the distinctions between first-party and third-party losses is crucial in navigating these claims effectively.

THE EMERGING THREAT OF PFAS

Per- and Polyfluoroalkyl Substances (PFAS), commonly known as “forever chemicals,” represent an emerging liability challenge. Used in a wide range of products, including firefighting foam and Teflon, PFAS are persistent in the environment and pose significant health risks.

Current Issues Related to PFAS

Ongoing class actions and pollution cleanup efforts, such as the notable case involving 3M in the US which was recently settled for US$10.3 billion in relation to claims that 3M contaminated drinking water with PFAS, highlights the substantial financial and environmental impact of PFAS.

PFAS in the Insurance Market

The insurance industry is responding by increasingly applying PFAS exclusions in liability policies, especially for high-risk industries. Businesses in industries potentially exposed to PFAS need to understand these exclusions and assess their coverage needs accordingly. It is predicted that PFAS exclusions will become ubiquitous for liability policies, similar to Asbestos exclusions.

  Engaging clients in discussions about their PFAS exposures and considering additional coverage options is essential.

PFAS Regulatory Developments

On 12 December 2023, the Australian government included PFOS, PFOA and PFHxS (and any substance capable of degrading to those chemicals) in Schedule 7 of the Industrial Chemical Environmental Management Standard (IChEMS). 

IChEMS is a national set of regulations managing chemical use, storage, handling and disposal.  Schedule 7 include the chemicals of greatest concern on the register, described as “relevant industrial chemicals that are likely to cause serious or irreversible harm to the environment with no essential uses”. The purpose of listing chemicals in Schedule 7 is to phase them out. While PFOS, PFOA and PFHxS have been classified and listed on the register now, the entry comes into effect on 1 July 2025 to allow industry additional time to phase out any remaining uses.

The increasing public and regulatory attention on PFAS means that businesses must be proactive in managing these risks.

PRACTICAL RECOMMENDATIONS FOR BUSINESSES

To effectively navigate the complexities of public and products liability, businesses should consider the following strategies:

Thorough Risk Management

Develop and implement comprehensive risk management plans that reflect the circumstances and scenarios that are relevant to the operational risk of the business. Regularly review, update and test these plans to ensure they remain credible and effective.

Detailed Contractual Agreements

Ensure all service agreements with contractors and subcontractors include principal’s indemnity clauses. This can streamline the claims process and reduce financial burdens on the insured.

Adequate Environmental Coverage

Assess pollution exposures and consider Environmental Impairment Liability (EIL) policies for more comprehensive coverage. Understand the distinctions between first-party and third-party losses.

Proactive PFAS Management

Engage in discussions with clients about PFAS exposures and consider additional coverage options. Stay informed about regulatory developments and public perceptions related to PFAS.

By adopting these strategies, businesses can better manage their liability risks, navigate complex claims processes, and ensure they have adequate coverage for their needs. Understanding the intricacies of public and products liability is essential for effective risk management and long-term business success.

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Important Notice

Berkley Insurance Company (limited company incorporated in Delaware, USA) ABN 53 126 559 706 t/as Berkley Insurance Australia is an APRA authorised general insurer. Information provided is general only, intended for brokers and has been prepared without taking into account any person’s particular objectives, financial situation or needs. It is not intended to constitute legal advice. You should always obtain legal or other professional advice appropriate to your own circumstances. Insurance cover is subject to terms, conditions, limits, and exclusions. When making a decision to buy or continue to hold a financial product, you should review the relevant Policy Wording.