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Public and Products Liability - Claim Examples

Business Description

The insured, a rural transport operator and property owner decided to clear some overgrown scrub on the perimeter fence around its yard. 

The cleared vegetation was tossed over the fence into an adjoining paddock, also owned by the client but leased to a family to graze horses. Amongst the prunings was a quantity of oleander shrub which is highly poisonous when consumed. Two of the horses, both quality showjumpers, consumed the oleander foliage and became ill. Despite emergency treatment they succumbed and died. 

After receiving legal advice on the question of foreseeability the claim was settled for more than $50,000. 

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Environmental Contamination

The insured is a provincial coachline operator. It has a bunded diesel fuel tank at its depot. The tank is owned by the fuel supplier. 

The tank had a simple outlet valve which had no locking or spill prevention device. Overnight, fuel was discharged through the valve which had been mysteriously opened, presumably by vandals. Spilt fuel collected in the bund. Unfortunately the rain drainage valve in the bund had been left open and the 18,000 litres of fuel subsequently discharged onto the ground and into a nearby waterway. There was an oyster farm downstream but fortunately the local authority acted quickly in containing the spill and an even greater loss was averted. The clean up costs were circa $400,000.

There was shared responsibility between the tank owner and the insured with each contributing 50%. Together with legal costs the claim was settled for close to $300,000. The insured’s Public Liability policy covered the insured for its contribution.

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Exports to Australia – Workers Compensation 

The insured, a New Zealand furniture manufacturer, exported a line of office furniture in flat packs for a new building in Victoria, Australia.

The main contractor engaged a labour pool firm to supply workers on the contract. One of these workers injured his back whilst handling one of the insured’s furniture packs. The personal injury claim against the labour pool was dealt with by the statutory Workers Compensation insurer, Victorian Workcover Authority (WVA). 

Under Victorian legislation WVA was entitled to seek recovery from the main contractor as “host employer”. The insured was joined in the action, it being alleged that a contributory factor in the accident was that the furniture packs had no external markings showing the weight of the pack with precautionary instructions on handling.

Under the insured’s Public Liability policy VL denied liability on behalf of the insured and at a subsequent mediation, settlement was achieved without any contribution from the insured.

Whilst the outcome was successful the costs involved in defending and attending the mediation were in excess of $40,000. 

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Forest & Rural Fires Act #1

The insured is a property owner. He was burning some stumps out to clear the land for pasture. A strong wind developed and sparks spread to a neighbouring property owned by Department of Conservation causing a fire amongst scrub and grass. 

The Fire Service was called and extensive firefighting was required to eventually extinguish the fire. The local Rural fire Authority claimed all costs incurred to fight the fire amounting to close to $50000. Under s.43 of the Forest and Rural Fires Act 1977 the Insured has a strict liability for these costs. 

The insured’s Public Liability policy (Forest and Rural Fires Act Memorandum) indemnified the insured.

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Forest & Rural Fires Act #2

During a prolonged dry spell the insured was engaged in logging operations in an extensive plantation forest area. A major fire broke out entailing a significant fire-fighting operation. Three separately owned forest blocks were affected.

Following intensive investigation it was reasonably established that the fire had started in an area where the insured was working – probably caused by sparks from chain-sawing igniting tinder-dry material on the forest floor.

The local Rural fire Authority claimed all costs incurred to fight the fire, in excess of $100,000. Under s.43 of the Forest and Rural Fires Act 1977 the Insured has a strict liability for these costs. VL’s Public Liability policy (Forest and Rural Fires Act Memorandum) indemnified the insured. The claims from the forest owners exceeded the limit of indemnity. 

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Forest & Rural Fires Act #3

The VL insured used gas fired bird-scarers to protect his vineyard. A bird-scarer toppled over in a strong wind and ignited dried vegetation on the ground. The fire spread to vines and driven by the strong wind spread to a neighbouring forest plantation block. The rural fire service did a good job and prevented widespread conflagration but they were unable to save 350 metres of fencing and an implement shed on the forest block.

The local fire authority claimed all costs incurred to fight the fire, just under $11,000 which was duly covered by VL under the Forest and Rural. The forest owner claimed for its fire-damaged property from its own insurer.  That insurer claimed (under subrogation) against  the insured under s.43 of the Forest and Rural Fires Act 1977 which imposes a strict liability on the insured for damage to third party property in such circumstances. 

The insured’s Public Liability policy (Forest and Rural Fires Act Memorandum) indemnified the insured and settled the claim but only up to $5m which was the policy limit at the time the damage occurred.

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General Liability

The farmer insured was felling a tree which fell on neighbour’s deer fence ripping the wire netting from a post and battens. The insured simply lifted the netting and left it hooked on the broken post, intending to come back later to effect permanent repair (and without informing the neighbour). At that stage the neighbour’s paddock had no stock in it.

The following week the neighbour put deer into the paddock. The insured had not yet made permanent repairs. The deer found the gap in fence and several escaped into forest beyond. The deer owner’s claim was settled under the farmer’s Public Liability policy for around $10,000.

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Goods in Care Custody or Control

The insured, a special event organiser hired commercial lighting equipment from a hire company. The hire company requires the insured to signs a hireage contract which states that the insured is liable for any loss of or damage to the hired equipment whilst in the insured’s care, custody or control.  

Whilst being assembled and rigged, an expensive telescopic light standard is bent and damaged beyond repair by contractors engaged by the insured. The hire company billed the insured for almost $20,000 to replace the standard. 

The Insured tried to deflect the claim on to its contractor but when the loss was eventually reported to and investigated by VL it became apparent that the contractor’s worker was under the strict direction of the insured’s staff and the claim was settled under the insured’s Public Liability policy (Property in Care Custody or Control Memorandum).

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Product Hazard

The insured processes cardboard by applying various hi-specification coatings for a number of different end uses. In this case the board was for a paint manufacturer, which supplied the board, to produce colour charts for retail/consumer markets. 

The finished product supplied by the insured was below specification, compromising the adhesive quality of the product. This resulted in the final colour samples flaking off the board. The colour charts had to be withdrawn and the insured was presented with a claim for circa $250,000 which comprised the cost of the board, further finishing costs and the customer’s product recall expenses. 

The Insured’s sale contract had a limitation of liability to the value of the goods, $110,000, which were defined as “packaging, wrapping, inserts, lining and protective materials”. This particular product fell outside this definition. 

Liability was admitted and settlement was negotiated with overall costs close to $150,000. 

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Product Recall

The insured supplied minced fruit as an ingredient for house-branded muesli bars exported to Australia for a major supermarket. 

Consumers found small shards of plastic in several bars. Extensive investigation showed the plastic was from a red pen that had somehow fallen into the fruit mix at Insured’s premises. All product from that run was recalled from all 211 outlets in Australia. The Insured’s Public Liability policy (Product Recall Memorandum) paid for advertising, dumping damaged product and individual store costs to empty and re-sort shelves up to the insured percentage. 

The claim costs totalled around $120,000. 

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Products Liability

The insured supplied an oil filter that had been manufactured (in China) with an undetected fault - the opening on the bottom was slightly off centre. The filter was installed into a client’s vehicle but did not seat correctly due to the fault, allowing the loss of oil from the block. A short time after fitting the filter the engine of the claimant’s vehicle seized due to lack of oil. 

As the insured had supplied a faulty product liability for the resultant damage was covered under its Public Liability policy and VL paid $3,900.

The Public Liability policy covered the resultant damage to the vehicle but not the cost of the faulty filter which was the insured’s product. Recovery against the wholesaler/manufacturer was not pursued due to economics. 

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Products Liability - Adequate Indemnity Limit

The insured, a NZ plastics moulding firm won an international tender to supply two million tiny plastic components to an American electronics manufacturer. 

The components which were worth less than 5 cents each were designed to encase miniaturised electronic componentry which when assembled were for use in consumer products. Because of a manufacturing fault and inadequate quality control in production the insured’s products were undersized by slightly less than 1mm and the internal components would not fit in. This disrupted and delayed production by several months which meant that the American customer missed supplying the flush of the Christmas retail season. 

A claim for over $NZ3m was conceded. The proprietor of the insured company had firmly resisted buying a Public Liability policy limit of more than $2m because of the premium cost of a more realistic limit and the belief that the type of goods he produced were completely harmless.” VL settled for the policy limit of $2m plus close to $100,000 costs - an expensive exercise for all concerned.

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Service & Repair

The Insured operates a pleasure craft retail and service business in a remote South Island township. It was asked to service a 60HP outboard motor for a local company which ran river tours. 

he insured’s servicemen re-assembled the engine but failed to replace the oil in the crank case. When it was being test-run the engine seized completely. As the engine was near new and the extent of the damage, even after repair, would have left the owner with a severely depreciated unit the claim was settled by replacement with a new motor. 

After salvage recovery on the damaged motor the insured’s Public Liability policy (Service and Repair Memorandum) $9,000 plus $1,500 for lost revenue when the owner had to cancel some tours pending the new motor arriving.

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Supply of Faulty Food

The insured, a food chemicals processor and supplier to the industry in NZ imported a chemical ingredient for infant formula from a Chinese supplier and on-sold to a NZ manufacturer who incorporated the ingredient in its product which was subsequently exported into the Chinese market. 

The insured received complaints from its customer that its infant formula had developed a fishy smell which resulted in its withdrawal and recall. Fortunately the end retailer in China had a very limited market and the recall was much simpler than it might have been. The allegation was that the insured’s ingredient was the cause of the undesirable odour. Scientific analysis in NZ was unable to detect any contaminant in the insured’s product but the weight of other evidence pointed to the ingredient in question without being conclusive.  

The value of the claim for the replacement of affected product plus recall costs etc was $900,000. VL engaged suitable technical and legal expertise to negotiate a settlement contribution of $240,000 plus costs totalling $66,000.

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Tenants Liability

The insured rents an upper floor premises on a standard lease agreement. On the Friday prior to a long weekend the insured’s employee leaves a cloth blocking the kitchen sink which also has a leaking tap The sink overflows and water damage occurs to flooring and cabinetry of the kitchen, as well as to the ceiling of the ground floor tenancy and that tenants file server and other office contents.

Under the Property Law Act 2007 the landlord’s insurance covered the damage to the building. 

The costs to repair the chattels in the other tenancy were covered under the insured’s Public Liability (Tenant’s Liability Memorandum).

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Underground Services

The Insured was operating a digger on a building site and cut through a previously identified power cable. This cuts power to Petrol Station across the road from the site. The Public Liability policy (Underground Services Memorandum) covered costs incurred to repair the cable – under $20,000. However the damaged cable caused a power outage to a new motorway service complex across the motorway from the site of the damage. Substantial claims were made on the insured by the operators of various outlets in the service complex. 

VL successfully defended these claims on the grounds that the insured was not liable for these losses as they were unforeseeable. Defence costs were significant.

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