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The name of this insurance is very misleading
Defective workmanship Insurance | Trade Risks
Defective work, poor workmanship, or faulty workmanship are a bit misleading when describing this insurance section. The policy designed to cover the liability that follows poor workmanship is part of public liability insurance and covers the legal liability that may follow faulty workmanship.
Example of a claim!
My client worked on an engine of a truck, so you can imagine it is a big machine and the process of getting it out of the truck, then opening it up and replacing and doing what you have to do. He somehow forgot a piece of cloth inside the engine when putting everything back together again, and to make a long story short, when he tried to fire up the machine, the whole engine seized up because of the cloth. The damage was significant, and the client filed a claim regarding the defective workmanship.
The insurance company repudiated the claim, and the client was furious. With actual claims, you get to learn how these policies work.
The policy does not pay for your mistakes. It pays for the liability because of your mistakes.
The wording of defective workmanship or poor workmanship policy is concise, and the exclusions are particular.
What you work on or worked on is not covered. Your client has to deliver such work, so whilst you are working on it not covered. Please refer to the contractor's all-risk section.
To get back to the truck engine. The client did not deliver the work yet, so the first and second exclusions you have worked on were not covered, so even if the machine did start but broke later, the policy would not have covered it either.
If the truck made an accident because of his mistake, then the policy would have covered the liability.
Working on an engine is a trade risk, not an insurable event. Most claims I had to deal with were motor related, so this cover is essential for anybody working on vehicles. I have many more claims examples. Let us see how much space I have within the article.
Understanding Public Liability Insurance
#### What is Public Liability Insurance?
Public liability insurance is a crucial safeguard for businesses, protecting them against claims of injury or damage caused by their negligence. This type of insurance covers product liability, defects, and negligence. Claims typically arise from customers who have been harmed due to a business’s actions or products.
Public liability insurance is offered on a claims-made basis, meaning it only covers claims made during the period the policy is active. Once the policy expires, any claims made thereafter will not be covered, even if the incident occurred while the policy was in effect. The alternative is occurrence-based coverage, where the policy covers incidents that happen during the policy period, regardless of when the claim is filed.
How Much Cover Do You Need?
Determining the right amount of coverage depends on your business's specific risks and the industry or contractual requirements you must meet. It's essential to assess what level of legal protection you would need if a third party sues your company. Coverage amounts typically range from R1,000,000 to R20,000,000. Carefully consider your business’s exposure to potential claims and choose a coverage level that adequately protects against those risks.
Who Needs Public Liability Insurance?
Public liability insurance is essential for businesses that interact with other companies, customers, suppliers, or the community. Even with stringent safety measures in place, accidents can happen, leading to injuries or property damage. Without public liability insurance, your business could face significant financial and legal repercussions from lawsuits. This insurance is particularly vital for businesses in sectors where there is frequent interaction with the public or where the risk of accidents is higher.
Understanding Legal Contexts: Criminal vs. Civil Law
Criminal Law
Criminal law deals with offenses that cause harm to the public and are prosecuted by the state. These offenses contravene common law or statutes and can result in penalties such as fines or imprisonment. Criminal cases are brought to court by the government and aim to punish the offender and deter future crimes.
Civil Law
Civil law, on the other hand, addresses disputes between individuals or organizations. It focuses on resolving non-criminal disputes, such as contractual disagreements or claims of negligence. The goal of civil litigation is to provide compensation to the injured party rather than to punish the wrongdoer. Common forms of civil litigation include breach of contract and tort claims.
Conclusion
Public liability insurance is an essential component of risk management for any business. It provides crucial protection against the financial and legal consequences of claims arising from injuries or damages caused by your business operations. Understanding the difference between criminal and civil law further underscores the importance of having adequate insurance coverage to navigate potential legal challenges.
By assessing your specific needs and risks, you can choose the right level of public liability insurance to safeguard your business and ensure its long-term success.
Overview
General & tenants Liability insurance covers covered general risks incurred by business owners and related property owners, including liability for the tenant. Product-defective workmanship liability insurance covers insured liability related to products or services.
General advice. Warning
Before focusing on this issue, the claim for Public Liability, particularly those for defective workmanship, must be evaluated by its merits and assessed individually. Our ability to provide you with a detailed list is limited to identifying specific scenarios to cover.
Questions & Answers
What is defective workmanship insurance?
It is when you become legally liable to pay for personal injury caused by or death to a person or damage to property because of poor workmanship. The work itself never gets covered. It is a liability policy and would cover the defective workmanship liability. The cover is not limited to premises.
Will the policy cover my legal costs?
Yes, if the schedule says legal costs included—the great benefit of having a liability cover in place. Legal fees can spiral out of control, and the insurance company has a legal team that would settle the claim if they feel they may lose, whereas you, as a client on your own, may be forced to continue with a case because of your inability to settle.
How do a business owner know if he should have defective workmanship insurance?
The moment you do any physical work for any client in your place of business or if you go out to a client to do work. That is it. You can argue that your business environment is not risky and you don't need it, but if you deal with employees and there is a tiny chance something can go wrong in your work, instead, add defective workmanship to your policy. Your customer is essential, and although you may not admit guilt according to the policy wording, you would want your customer to be covered.
Who may sell the liability insurance?
An authorised financial services provider who is a licensed non-life insurer according to the financial services board in South Africa
Summary
It is always a part of liability insurance that is very interesting to me and how they came up with the name is also fascinating. If a motor fitment centre fits a new tyre and the wheel nut is not tightened correctly, the client pays for the work and drives off. He had an accident because the wheel fell out a couple of miles away. The liability that may follow of damage to cars and injury to people are covered, but the actual wheel worked on is not covered. When I started seeing clients, I was still very young, and I quickly had to find ways to explain this insurance to clients. I have been using this example for years.
Take action and get your business liability policy reviewed. Follow the link to our contact page and put liability in the description box, and we will contact you.
Remember, you can't buy insurance when you need it.
Albert Schuurman
The creator of the financial freedom course believes that you need proper business insurance to protect your financial freedom.
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