Public & Product Liability Insurance: CMFAS CGI Notes

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Commercial Liability Insurance

Commercial liability insurance protects a business against its legal liability to pay damages and defence costs when its operations, products, premises or employees cause injury, illness or property damage to third parties or workers, with the main classes being public liability, product liability, employers' liability and professional indemnity.

13 min read9 sections

Must-know for the exam

Commercial liability insurance pays what the business becomes LEGALLY LIABLE to pay third parties (damages), plus defence costs — not damage to the insured's own assets.
Public liability covers injury or property damage to MEMBERS OF THE PUBLIC (non-employees) from the insured's operations or premises; it excludes the insured's own workers and own property.
Product liability covers injury or damage caused by products AFTER they leave the insured's control, but not the cost of the defective product itself or its recall.
The dividing line between public and product liability is location/control: harm at the insured's premises is public liability; harm from a supplied product in the field is product liability.
Employers' liability responds to the employer's COMMON-LAW (negligence) liability to its own employees; work-injury cover responds to NO-FAULT statutory liability.
In Singapore, WICA is a NO-FAULT scheme letting an injured employee claim defined compensation without proving negligence, and employees generally must ELECT between a WICA claim and a common-law claim.
Professional indemnity covers PURE FINANCIAL LOSS from negligent professional advice, error or omission, and is almost always written on a CLAIMS-MADE basis.
Liability policies carry a LIMIT OF INDEMNITY, not a sum insured; limits are expressed 'any one occurrence/claim' and/or 'in the aggregate', with product and PI limits often aggregate.
OCCURRENCE cover responds to injury/damage happening in the policy period whenever the claim arises; CLAIMS-MADE cover responds to claims first made/notified during the policy period.
A claims-made policy's RETROACTIVE DATE excludes wrongful acts before a set date, and gaps at renewal or on ceasing trade can leave past errors uncovered unless run-off cover is bought.
Defence costs may be COSTS-IN-ADDITION (on top of the limit, preserving it) or COSTS-INCLUSIVE (within the limit, eroding it) — a key wording difference, common as inclusive in PI.
Insurers typically CONTROL the defence; the insured must give prompt notification, must not admit liability or settle without consent, and must cooperate.
CONTRACTUAL LIABILITY assumed under a contract (indemnity/hold-harmless clauses) beyond the insured's ordinary legal liability is generally EXCLUDED.
DELIBERATE or intentional acts are excluded because insurance covers only FORTUITOUS events; typical further exclusions include own-employee injury (PL), motor/aircraft/watercraft, fines and penalties, and gradual pollution.

Traps that cost marks

Confusing liability cover (pays third parties) with property cover (pays for the insured's own losses).
Assuming public liability covers the insured's own workers, who are actually covered by work-injury/employers' liability.
Mixing up the trigger point — harm on the insured's own premises is a public-liability matter, not product liability.
Deciding cover by the type of business rather than by whether the harm occurred on-premises or from a product in the field.
Confusing common-law employers' liability with no-fault statutory work-injury (WICA) cover.
Believing the statutory WICA route requires proof of fault, which is the feature of the common-law route instead.
Expecting PI to cover bodily injury or physical property damage, which are the domain of public and product liability.
Assuming PI follows the occurrence basis used for public and product liability.

What commercial liability insurance covers

Liability insurance responds to a business's LEGAL LIABILITY to third parties — its obligation, imposed by law, to compensate others for loss or harm it has caused. Unlike property insurance, which pays for damage to the insured's OWN assets, liability insurance pays what the insured becomes legally liable to pay SOMEONE ELSE, together with the cost of defending the claim.

Most legal liability faced by businesses arises in the law of TORT (chiefly negligence), where a business owes a duty of care, breaches it, and causes foreseeable injury or damage. Liability can also arise under CONTRACT and under STATUTE (for example workplace-safety and employer-liability legislation). Liability policies are triggered when a THIRD PARTY brings, or is entitled to bring, such a claim against the insured.

The principal commercial liability classes tested in CGI are:

•PUBLIC LIABILITY — legal liability to members of the public (non-employees) for injury or property damage arising from the insured's business operations or premises.
•PRODUCT LIABILITY — legal liability for injury or damage caused by products the business has supplied, sold or manufactured, after they have left the insured's control.
•EMPLOYERS' LIABILITY / WORK INJURY — legal liability (and statutory compensation obligations) to the insured's own EMPLOYEES who are injured or fall ill through their work.
•PROFESSIONAL INDEMNITY — legal liability for financial loss suffered by clients or others because of the insured's negligent professional advice, design or service.

Because these covers pay THIRD-PARTY claims, they are contracts of indemnity but the amount payable is set by the law of damages and by the policy's LIMIT OF INDEMNITY, not by a sum insured on a physical asset.

Public liability

Public liability (PL) insurance covers the business's legal liability to MEMBERS OF THE PUBLIC — customers, visitors, passers-by, contractors and other non-employees — for bodily injury, illness, or loss of or damage to their property, arising out of the conduct of the insured's business or the condition of its premises.

Typical triggering situations include a customer slipping on a wet floor, a member of the public struck by a falling object at a worksite, or damage caused to neighbouring property while the insured carries out work. The policy generally pays the DAMAGES the insured is legally liable to pay the injured party, plus associated legal DEFENCE COSTS.

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Frequently asked questions

What is public liability insurance?

Public liability insurance covers a business's legal liability for injury or property damage to members of the public (not its own employees) caused by its operations or premises. It pays damages and defence costs. It does not cover the business's own workers or its own property.

What is the difference between public and product liability insurance?

The line is location and control. Harm at the insured's premises or from its operations is public liability. Harm caused by a product after it has left the insured's control is product liability. Product liability does not pay for the faulty product itself or for a recall.

Is employers' liability the same as WICA cover?

No. Employers' liability responds to the employer's common-law (negligence) liability to its own employees. Work-injury cover responds to the no-fault statutory scheme under WICA, where an injured employee claims set compensation without proving negligence. Employees generally have to choose between a WICA claim and a common-law claim.