Why liability loss may be your company’s worst nightmare

We all know that accidents happen – people, both employees and the public, get injured in the workplace – but what gives most people a shock is the massive implications and costs that can unfold as a result.

Bearing in mind that a workplace could be your home – it certainly is when an electrician or plumber, for example, comes on site – there are a number of pitfalls that can prove very costly in the long run (even resulting in prosecution for some).

Common mistakes many make include:

  • The limit of indemnity people were insured for was too low; and
  • The nature of activities that was disclosed when the proposal was done actually differed from what was claimed against.

For example, a company may start out manufacturing and distributing dog food. But the business morphs and evolves and soon a breeding centre or dog kennels are added. One day, somebody gets bitten, but the insurance company declines the claim because justifiably they can say, “No, we have you down for distributing dog food – we didn’t know you had dog kennels”.

This leaves the business facing huge costs in reparations, legal defence costs, loss of business reputation and fines and penalties (some of which you can’t insure against).

For a good example of the cost that liability can inflict on a business, let’s look to the hospitality sector.

In a recent true story, the manager of a bar failed to ask an underage drinker for their identification (this was during the Christmas season). The result was a $1,000 fine and the café was closed for three days. The Bar manager’s license was revoked for 28 days – this is all standard.

It’s normal business practise in the hospitality industry to ‘borrow’ the neighbour’s bar manager to act as a locum bar manager. However, because it was the busy period, the bar couldn’t find a locum manager and had to remain closed over the Christmas period.

The business lost more than $55,000 worth of turnover and income over their busiest period. If their business had liability, consequential loss cover and statutory liability (to help with the fine and penalty), they would have been okay.

Bear in mind that cost is not a factor. One million dollars of statutory liability cover could cost you as little as $276 (including GST) per year – it is dependent on the nature of the business, number of employees, turnover, etc. but it is not expensive cover to have!

The problem is not the cost of the insurance, or what goes wrong, but the cost to the business – a health and safety investigation is bad enough – which includes reparations, penalties, fines and loss of reputation could cripple the business.

Photo by: Kyryll Ushakov

Sum insured replaces open ended home insurance in New Zealand

Screen Shot 2014-09-11 at 9.25.03 amThe Christchurch earthquakes changed the face of insurance in New Zealand and ushered in a new form of home insurance called sum insured – your home is insured for an agreed fixed amount – which applies to all home owners regardless of where they live, whether Auckland, the Hawkes Bay or Stewart Island.

While sum insured is new to New Zealand, our country enjoyed the privilege of being one of the few, if not the only nation, where the sum insured rules did not previously apply (until now, home insurance was based on open ended insurance, which means you could insure to replace to an agreed size, rather than an agreed amount).

Essentially, however, sum insured means that your home may still be insured for what it’s worth.

The only difference is that you have to determine its worth before you begin the policy, and it’s critical that you make sure you have the value correct.

There are three ways to determine value:

1. You may accept the default home value calculation provided by your insurer.

However, numerous media articles and studies have determined that going with your insurer’s default amount may leave you significantly under-insured.

2. You may use the Cordell rebuilding cost calculator (adapted from Australia), but even community organisation Cancern warns that homeowners should not rely on the calculator.

Cancern’s Leanne Curtis told the New Zealand Herald: “Unless people get qualified quantity surveyors in, they are going to miss something. A bigger concern is that people don’t really understand enough about what their insurance covers.”

You can use a specialist property valuer (good enough for most homeowners) and or building or quantity surveyor services to get a true estimate of how much it will cost to rebuild your property.

A valuation may cost between $400 and $600, but it is essential you understand the true value of your property, and it is not as easy at it seems.

For example, if a house cost’s $300,000 to rebuild in one part of Auckland, it could cost $320,000 to rebuild in another part of Auckland because of access issues or building materials. That’s why it is important to be know your own situation thoroughly.

If you want advice one what might be the best way forward for yourself, feel free to give me a call on 021 889 413 or send me an email via our contacts page.

 

 

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