Managing the risks when warning labels fail

There’s nothing to be done now about the reputational damage VW has suffered by trying to stonewall concerns over vehicle safety and having to be reluctantly dragged and badgered into a massive recall. But presumably they do have large public and product liability insurance policies securely in place.

Not that I would want to suggest VW had been selling faulty vehicles, heavens no. But with numerous readers complaining of a sudden loss of power when driving along in their vee-dubs, the company would be even sillier than its public relations management if it wasn’t very well insured indeed. Just in case.

Which is the point of all forms of insurance – just in case. It’s the need to cover the unexpected events that otherwise could sink or severely damage a business. And there’s no shortage of them – the world can be a cruel place.

Given the complexities and risks involved in making and selling motor vehicles, it’s pretty obvious that a whole raft of disastrous liabilities have to be covered, with examples ranging from hundreds of people killed in Ford Explorer/Firestone tyres rollovers to the 12 million vehicles Toyota has recalled for one reason or another since 2009. Even a loose floor mat can cause a fatal accident, with the manufacturer potentially liable.

The most pedestrian and risk-averse businesses can be hit. Have any dealings with anyone and you need public liability insurance – the courier tripping over the welcome mat, a customer slipping while using your bathroom, the infamous American McDonald’s case of a woman suing after dropping hot coffee on herself. Heck, never mind businesses, you’re mad if you don’t have the fairly standard $20 million public liability policy that tends to come with home and contents. Check.

It gets harder again, though, when products are added to the mix. The Australian government’s business.gov.au website warns that if you sell, supply or deliver goods, even in the form of repair or service, you may need cover against claims of goods causing injury, death or damage.

It is normally the manufacturer or importer who is liable over a product safety issue, but the Australian Competition and Consumer Commission says a retailer can be liable if they cannot identify the manufacturer or importer. Get into the realm of modifying goods and servicing them and the legal waters become murkier.

There is a delightfully wicked meme going round that says: ‘‘I’m not saying let’s go kill all the stupid people ... I’m just saying let’s remove all the warning labels and let the problem sort itself out.’’

No, that’s not an option – and the warning labels and various disclaimers don’t solve liability issues anyway. As the NSW Supreme Court ruled earlier this month, all the fine print on the back of Perisher Blue lift tickets doesn’t rule out a skifield operator’s liability for an incorrectly swung lift seat, even with a blanket disclaimer as broad as ‘‘We are not liable to you for any loss, damage, injury or any incidental ... loss ... to a person or property whether arising from default, negligence, misconduct or otherwise by us’’. Hmm, I’m surprised there wasn’t a mention of nuclear war and bubonic plague outbreaks in there somewhere.

The question of how much insurance cover to purchase can be tricky, depending obviously on the size and nature of a business. One person’s lion-taming school is likely to be a little different from another supplying knitting patterns. Asking an insurance company how much cover you need can be like asking a barber if you need a haircut. But that’s where brokers can be of help and the usual rules of shopping around for quotes and opinions apply.

The bottom line, given the ability of an accident to bankrupt a business, is that the bare minimum might not pass the ‘‘how soundly can I sleep at night’’ test.