Is your business at risk of being sued as a result of the CPA?

28 February 2012: Changes to the Consumer Protection Act (CPA), which has had an impact on most businesses, has resulted in commercial insurance policies being amended to protect clients from exposure to litigation as a result of the products and services

This is according to Rachel Roberts, Commercial Technical Underwriter at CIB Insurance Administrators (CIB), who says that under the CPA, should a consumer suffer a loss, injury, or damage as a result of a faulty product, they have the right of recourse against all involved, which includes the supplier, manufacturer, retailer, or anyone who provided the product or service.

”Traditional liability cover offered by CIB was based on the traditional Multimark type policy wording and was generally only offered to manufacturers for cover against liability arising from faulty products. As a result of the changes to the CPA and its enactment and the consequential risks businesses now face, CIB have changed their policy wording to protect their clients from legal action,” Roberts says.

Brokers are now required to offer their clients cover for this eventuality whether the client manufactures or supplies any sort of product. Although the perception exists that the Act is limiting for the policy holder, it makes every business look critically at the cover that they have in place.

“Furthermore, it gives the broker an opportunity to provide a detailed explanation to their clients of the consequences of the CPA and what the potential penalties could amount to, should the client not have adequate cover,” Roberts says.

Roberts adds that a comprehensive policy should employ Broad Form liability cover, and includes a Products Liability extension which protects the supplier, retailer or manufacturer of goods. “This extension also provides the necessary protection for the client for instances where they are held liable for injury, loss or damage as a result of faulty work, historically covered under the Defective Workmanship extension.

“With the implementation of the Broad Form cover, damages caused as a result of defective work are covered by the policy immediately whereas in the past, the policy would only pick up the claim after the completion and handing over of the work.”

One of the biggest differences in the changes to CIB’s policy wording is reference to the term ‘accidental’, which has been removed and the client no longer has to prove that injury, loss or damage occurred accidentally to be covered under the policy.

Roberts says that if a policy holder purchases a new business or extends their business operations, an automatic extension is included at no charge for new acquisitions they purchase for a 90 day period, as long as the business activities are the same as those of their current insured business. “Details of the new annual turnover, increased number of premises and any other pertinent information need to be provided to the insurer so that the correct premium can be charged and the policy amended to provide sufficient cover.”

Roberts advises that businesses contact their brokers to ensure that they are adequately protected and if they require any new extensions that weren’t available in the past.