Why Public Liability Insurance Is Ignored Among Insurers

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By Nicholas Kitonyi | GuruFocus.com

The insurance industry thrives on the fear of financial loss. However, those last five words have been gold coated to appear different in many ways. Some view insurance as a means of managing risk while others see it as an opportunity to get a new asset whenever the old one is wrecked. Whichever way you look at it, there is some level of fear involved.

This fear can be more intense in some sections of the insurance industry than it is in others. Auto insurance is not one of them. In fact, people are becoming very selective in the type of insurance they buy for their vehicles. Public liability insurance, on the other hand, is one of the segments that those buying insurance tend to be under intense fear. While it continues to gain popularity in the market, it is still pretty much ignored by many insurance companies. Most insurance companies incorporate public liability insurance benefits within general insurance products.

According to this definition on Be Wiser Business insurance, public liability insurance protects businesses from financial losses associated with customer lawsuits. It provides cover if a customer is injured on your premises or if you accidently damaged somebody else’s property when carrying out your work.

One of the most famous customer lawsuits was filed by Stella Liebeck against McDonald’s Corp.(MCD), in which case the jury awarded her $2.7 million in punitive damages. For those unfamiliar with the lawsuit, here is a quick rundown of what transpired.

In 1992, Liebeck spilled a McDonald’s coffee in her lap, causing third-degree burns on her legs, lap and groin area. She tried to solicit McDonald’s for $20,000 to cover the skin grafts required for her injuries and other related expenses, but McDonald’s offered only $800. After going to trial in 1994, the liability suit was settled for a total of $2.86 million, including $160,000 for the jury damages.

Since then, McDonald’s has been sued by more than 700 customers in relation to the temperature of its coffee, which according to the Liebeck lawsuit ranges from 180 to 190 degrees Fahrenheit. This is at least 40 degrees higher than in most restaurants.

There has been an increase in the number of public liability lawsuits across all business sectors, but most are not recognized as such, especially when it comes to buying insurance coverage for financial losses associated with such lawsuits. Nonetheless, the more the courts continue to rule in favor of customers, the more public liability lawsuits we are likely to see. Given the current business environment and the unerring ability of customers to bring businesses down through lawsuits, it explains why many are increasingly buying insurance against public liability.

One of the largest players in general liability insurance is Old Republic International Corp. (ORI). The company primarily focuses on general and title insurance. Public liability insurance falls under the category of general insurance at many insurance companies, and this is no different at Old Republic.

This means if the insured seeks to buy public liability insurance, then they may be forced to take up the general insurance option in these companies. Some businesses looking to buy public liability insurance try to avoid the high cost associated with paying premiums for general liability insurance, which as the name suggests covers pretty much everything. To some, the extra coverage is unnecessary, hence the need for choice. But from the perspective of an insurance company’s revenues, public liability insurance is inseparable from general liability insurance.

Old Republic International receives nearly 60% of its revenue from the general insurance business. The company notes “the majority of coverages [in general insurance business, the Old Republic General Insurance Group] are liability and workers’ compensation insurance products.” So it is clear that in most cases, the public liability insurance features are incorporated in the general liability insurance business.


Public liability is specific. It protects business owners and their businesses from financial losses due to injury to a member of the public on their premises because of negligence. On the other hand, general liability insurance covers payments for bodily injury, property damage, libel, slander or judgments and fees involved in defending lawsuits from customers, employees or even shareholders.

As such, while public liability insurance is cheaper, it also leaves businesses and their owners exposed to other potential lawsuits that can lead to substantial financial losses. This explains why most insurance companies are reluctant to offer public insurance liability as a standalone product to customers.

Disclosure: No position in stocks mentioned in this article.

This article first appeared on GuruFocus.