Defending a Public Liability Claim: Your Rights as the Insured Business

·14 min read

Defending a Public Liability Claim: Your Rights as the Insured Business

When a customer slips on your freshly mopped floor or a delivery driver trips over stock in your warehouse, the first thought for most business owners is panic. But here is the legal reality: you have a contractual right to have your insurer defend that claim on your behalf, provided you meet your obligations under the policy. The Insurance Contracts Act 1984 (Cth) creates a framework that balances the insurer’s right to investigate with your right to a fair defence. Understanding those rights—and the corresponding duties—can mean the difference between a claim that resolves quietly and one that spirals into litigation that threatens your business.

As an insurance lawyer who has spent years on both sides of the negotiating table, I can tell you that the most common mistake business owners make is assuming their insurer will automatically do the right thing. In 2026, with public liability premiums ranging from $400 to $2,000 per year for most small businesses (depending on your industry, turnover, and claims history), the cost of coverage is modest compared to the potential damages—but only if you know how to activate your rights effectively.

Your Core Rights Under the Insurance Contract

The Right to Have Your Insurer Conduct the Defence

The moment a claim is made against you, your public liability policy imposes a duty on the insurer to manage the defence. This is not a favour—it is a contractual obligation. Under section 54 of the Insurance Contracts Act 1984 (Cth), an insurer cannot refuse to pay a claim simply because of some act or omission by you that does not cause or contribute to the loss. More directly, the policy wording will typically state that the insurer has the right to “take over and conduct in your name the defence or settlement of any claim.”

This means you cannot be forced to pay for your own lawyer unless the insurer validly denies coverage. If your insurer accepts the claim, they must appoint legal representatives, manage the litigation strategy, and cover all reasonable costs—including expert reports, witness fees, and court filing fees. In a 2025 case in the Victorian Civil and Administrative Tribunal, a café owner successfully challenged an insurer that tried to limit defence costs after the claim had been accepted; the tribunal confirmed that once an insurer assumes conduct of the defence, they must fund it properly.

The Right to Be Kept Informed

You are entitled to know what is happening with your claim. While the insurer manages the day-to-day litigation, you have a right to receive updates on key developments: whether the claim is being defended, whether settlement offers have been made, and what the likely timeline looks like. Most Australian insurers now provide online portals where you can track claim progress, but if you are not receiving regular updates—at least every 30 to 60 days—you should request them in writing.

This right is implied by the duty of utmost good faith under section 13 of the Insurance Contracts Act 1984 (Cth). Both you and the insurer owe each other this duty. If your insurer withholds information about a settlement offer or fails to consult you before making a decision that affects your legal position, they may be in breach.

This is where many business owners get caught out. Most public liability policies give the insurer the right to settle a claim without your consent if the settlement is within the policy limits. However, if the proposed settlement exceeds your excess or involves an admission of liability that could affect your reputation or future insurability, you generally have the right to refuse.

The standard approach in Australian policies is that the insurer must obtain your written consent before settling any claim. If you unreasonably withhold consent, the insurer’s liability may be limited to the amount for which the claim could have been settled. This creates a delicate balance: you cannot simply refuse a reasonable settlement to protect your pride, but you also should not be forced into a settlement that damages your business.

A practical example: In 2025, a New South Wales retail store faced a claim for $80,000 after a customer tripped over a loose floor tile. The insurer wanted to settle for $45,000, but the store owner refused because he believed the claim was fraudulent. The matter went to mediation, and the owner’s position was vindicated when the customer’s evidence fell apart. The key was that the owner had strong evidence—CCTV footage—to support his refusal. Without that evidence, refusing a reasonable settlement would have been risky.

Your Obligations as the Insured Business

The Duty to Cooperate

Rights come with responsibilities. Your most critical obligation is to cooperate fully with the insurer’s investigation and defence. This means providing all relevant documents, attending interviews or conferences when requested, and not admitting fault or liability without the insurer’s consent.

Under section 54 of the Insurance Contracts Act, if your failure to cooperate prejudices the insurer’s ability to defend the claim, the insurer may reduce their liability proportionally. In a 2024 Queensland tribunal case, a landscaping business lost its right to indemnity because the owner repeatedly failed to provide site photos and witness statements, despite multiple requests from the insurer. The tribunal found that the owner’s conduct had materially prejudiced the defence.

The Duty to Notify Promptly

Time is not on your side when it comes to public liability claims. Most policies require you to notify the insurer “as soon as reasonably practicable” after an incident occurs or a claim is made. In 2026, with the average time from incident to claim being around 8 to 12 months in many states, early notification gives your insurer the best chance to gather evidence, interview witnesses, and preserve CCTV footage before it is overwritten.

Failure to notify promptly can result in the insurer denying coverage. In a 2025 Australian Financial Complaints Authority (AFCA) determination, a small business owner who waited six months to report a slip-and-fall claim was denied indemnity because the insurer could no longer inspect the site or locate witnesses. The AFCA upheld the insurer’s decision, noting that the delay was unreasonable and prejudicial.

The Duty to Avoid Prejudicing the Defence

Never admit fault, offer to pay, or make promises to a claimant without your insurer’s written consent. Even a simple “I’m sorry” can be used against you in court—though it is worth noting that under the Civil Liability Act 2002 (NSW), section 69, and similar provisions in other states, an apology does not constitute an admission of liability. However, an apology combined with an offer to pay medical expenses or repair damage can be treated as an admission.

If you do inadvertently say something that could be interpreted as an admission, tell your insurer immediately. They can often manage the damage by clarifying your position or negotiating a release.

How the Defence Process Works in Practice

Stage 1: Notification and Acknowledgment

You report the incident to your insurer, either through your broker or directly. The insurer issues a claim number and appoints a claims manager. Within 7 to 14 days, you should receive a letter confirming whether the claim is accepted or whether further information is needed. If the insurer requires more information, they will typically give you a reasonable timeframe—usually 14 to 30 days—to provide it.

Stage 2: Investigation and Assessment

The insurer will gather evidence: witness statements, incident reports, photographs, CCTV footage, and any relevant documents like maintenance logs or safety checklists. They may also engage an independent investigator or loss adjuster. During this stage, you should expect to be contacted for information, but you should not be expected to conduct the investigation yourself.

In 2026, many insurers use digital platforms where you can upload documents directly. This speeds up the process significantly—some claims are assessed within 30 days of notification.

Stage 3: Decision on Liability

Based on the evidence, the insurer will form a view on whether you are legally liable. This is not a final determination—it is an assessment of the strength of the claimant’s case. If the insurer believes liability is likely, they will typically try to negotiate a settlement. If they believe the claim is weak, they will defend it.

You have the right to challenge the insurer’s assessment if you disagree. For example, if the insurer wants to settle but you believe the claim is fraudulent, you can request a second opinion or ask for the matter to be escalated to a senior claims manager. If the dispute persists, you may need to seek independent legal advice—though this is rare.

Stage 4: Litigation or Settlement

If the claim cannot be resolved through negotiation, the insurer will appoint a law firm to defend you. The lawyer will file a defence, attend court conferences, and represent you at trial if necessary. Throughout this process, you must cooperate with the lawyer, attend court when required, and provide all relevant information.

If the claim settles, the insurer will pay the settlement amount (up to the policy limit) and your legal costs. If the matter goes to trial and you win, the claimant will typically be ordered to pay your costs, though this is not always recoverable in full.

State-by-State Differences That Affect Your Defence

Civil Liability Acts

Each state and territory has its own civil liability legislation that governs how public liability claims are assessed. While the principles are broadly similar, there are important differences:

Work Health and Safety Acts

Your state’s Work Health and Safety Act (WHS Act) can influence a public liability claim indirectly. If a regulator investigates an incident and issues a compliance notice or improvement notice, that can be used as evidence of a breach of duty in a civil claim. Conversely, if the regulator finds that you complied with your WHS obligations, that can strengthen your defence.

In 2026, the harmonised WHS laws apply in all states except Victoria and Western Australia, which have their own regimes. If you operate in multiple states, you need to be aware of the differences in how regulators approach investigations.

When Your Insurer Gets It Wrong

Denial of Coverage

If your insurer denies coverage for a claim, you have several options. First, request a written explanation citing the specific policy exclusion or condition they rely on. This is your right under the duty of utmost good faith. Second, if you disagree, you can lodge a complaint with the insurer’s internal dispute resolution process. Third, if that fails, you can take the matter to AFCA, which handles disputes up to $1 million.

In a 2025 AFCA determination, a small construction business successfully challenged an insurer’s denial of coverage for a claim involving a subcontractor’s negligence. The AFCA found that the insurer had misinterpreted the policy’s “independent contractor” exclusion and ordered the insurer to indemnify the business.

Failure to Properly Defend

If your insurer is not actively defending the claim—for example, they are delaying, failing to appoint a lawyer, or refusing to engage expert witnesses—you should escalate the matter immediately. Document every communication and keep a timeline. If the insurer’s conduct is causing you prejudice (such as missing court deadlines or allowing a default judgment), you may be able to sue the insurer for breach of contract or breach of the duty of utmost good faith.

Conflict of Interest

Rarely, a conflict may arise between you and your insurer. For example, if the claim exceeds your policy limit, the insurer may want to settle within the limit, while you may want to fight the claim to avoid a large excess payment. In such cases, you have the right to appoint your own lawyer at your own expense to protect your interests, while the insurer continues to manage the defence through their appointed lawyer.

This situation is uncommon but important to understand. If you suspect a conflict, discuss it openly with your insurer or broker. Some platforms, like BizCover, provide clear guidance on how conflicts are handled, which can help you navigate this grey area.

Frequently Asked Questions

What happens if I admit fault before notifying my insurer?

Admitting fault can seriously prejudice your defence. While an apology alone is generally not an admission of liability under most civil liability acts, saying “I’m responsible” or offering to pay medical bills can be used against you. Notify your insurer immediately if you have made any admission—they may still be able to manage the situation.

Can my insurer settle a claim without my permission?

Generally, yes, if the settlement is within your policy limits and does not involve an admission of liability that affects your reputation. However, most policies require your written consent. If you unreasonably withhold consent, your insurer’s liability may be capped at the settlement amount they could have achieved.

Do I have to pay my excess if the claim is successfully defended?

Typically, yes. Your excess applies to each claim, regardless of the outcome. If the claim is successfully defended, you still pay the excess for the legal costs incurred. Some policies offer “legal defence costs included” options that reduce or eliminate this exposure, but these are more expensive.

What if the claimant exaggerates their injuries?

Exaggeration is common in public liability claims. Your insurer’s investigators and lawyers are trained to identify inconsistencies. If you have evidence—such as CCTV footage, witness statements, or social media posts showing the claimant engaging in activities inconsistent with their claimed injuries—provide it to your insurer immediately.

How long does a typical public liability claim take to resolve?

Most claims resolve within 6 to 18 months, depending on complexity. Simple slip-and-fall claims with clear liability may settle within 3 to 6 months. Claims involving serious injuries, multiple defendants, or disputed liability can take 2 to 3 years or more.

Can I choose my own lawyer to defend the claim?

Generally, no. Your insurer has the contractual right to appoint the legal team. However, if there is a conflict of interest or if you are paying for additional legal advice separately, you can instruct your own lawyer. In practice, most business owners rely on the insurer’s appointed lawyers, who are experienced in defending public liability claims.

What happens if the claim exceeds my policy limit?

If the claim exceeds your policy limit, you are personally responsible for the excess amount. Your insurer will still defend the claim up to your policy limit, but you may need to contribute to any settlement or judgment above that limit. This is why it is critical to review your policy limits annually and consider increasing them if your business grows or takes on higher-risk activities.

Can my insurer cancel my policy after a claim?

Yes, insurers can cancel or non-renew policies after a claim, particularly if the claim was large or involved a breach of policy conditions. However, they must provide notice and comply with the Insurance Contracts Act 1984 (Cth). If your policy is cancelled, you may need to seek coverage from a specialist insurer or a higher-risk market, which will likely cost more. Platforms like BizCover can help you compare options if this happens, but the key is to maintain a good claims history by cooperating fully and implementing risk management improvements.

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