Damage arising from business operations can turn into legal liability
A business's operations do not affect only its own employees, premises or assets.
Customers, visitors, suppliers and other third parties may also be affected by the activities the business carries out.
When a third party is injured or their property is damaged as a result of an incident at the workplace, an activity being carried out, or an area under the business's control, this can give rise to a liability to pay compensation on the part of the business.
Third Party Financial Liability Insurance ensures that the legal and financial liabilities that may arise towards third parties as a result of the business's operations are assessed within the scope, limits and terms defined in the policy.
Which damages can give rise to liability?
The following damages caused to third parties in the course of the business's operations can become a matter of financial liability:
- Bodily injury
- Compensation claims arising from injury or permanent disability
- Claims brought by beneficiaries in the event of death
- Material damage to buildings, goods or other property belonging to third parties
- Legal defence and litigation costs that can be assessed within the terms of the policy
The scope of cover, liability limits, exclusions and special conditions are determined according to the policy issued.
Liability does not always begin with a major incident
Third party liability can sometimes arise from an event that appears quite simple.
A customer slipping and being injured inside the premises, an object falling from the workplace and harming a third party, or damage caused to nearby property during a business activity may at first appear to be a limited incident.
However, that same incident can turn into:
- Medical treatment costs
- Loss of income claims
- Material damage claims
- Legal proceedings
- High-value compensation claims
For this reason, it is not merely the scale of the incident that matters, but the legal liability the business may face as a result of it.
Third party liability is not the same for every business
A restaurant and a warehouse, a hotel and a workshop, or a retail store and a construction site do not share the same liability structure.
The extent to which the business comes into contact with third parties, where and how its activities are carried out, and the equipment used can directly affect its liability structure.
The assessment takes the following factors into account together:
- The nature of the business's activity
- The physical layout of the operating area
- The volume of customers and visitors
- The machinery and equipment used
- Activities carried out away from the premises
- Annual activity or turnover volume
- Past incident and claims history
- The liability limit requested
For this reason, Third Party Financial Liability Insurance is structured not merely according to the business's trade title, but according to how the activity is actually carried out.
Who is a third party?
For the purposes of the policy, the concept of a third party is assessed according to the terms of the policy issued.
Certain groups of people, such as the insured themselves, specified relatives, or persons employed under a service contract, may fall outside the general definition of a third party.
Similarly, damage caused intentionally and activities or circumstances expressly excluded in the policy are not considered to be within the scope of cover.
For this reason, in financial liability insurance the question "what damage occurred?" alone is not sufficient. The following aspects of the damage —
- To whom the damage was caused
- During which activity it occurred
- What the legal relationship between the parties was
- What connection exists between the incident and the business's operations
— are also assessed together.
The link between operations and liability
At the heart of Third Party Financial Liability Insurance lies not the damage the business itself suffers, but the legal and financial liability arising from damage the business causes to a third party.
For this reason, a proper assessment does not consist merely of knowing which sector the business operates in.
Where the activity is carried out, who is come into contact with, the physical structure of the business, and the risks third parties may face during that activity are all considered together.
What matters is to correctly define not only the damage that may occur, but the liability that damage may give rise to for the business.