Monday, July 31, 2023

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Allegations of Negligence: A Guide for Business Owners

Whilst robust controls and ongoing training are the first lines of defence for any business, some mistakes cannot be avoided. For this reason, business owners can find themselves in disputes with either customers or suppliers, after receiving allegations of negligence. This is often followed by uncertainty around whether they had a duty of care and if it was breached, which is where the law of Torts comes into play. In response to the increasing prevalence of litigation arising from civil liability matters, many businesses will obtain public liability and professional indemnity insurance to limit the financial loss associated with legal action.

A bit of context…

Tort actions are legal proceedings initiated by individuals or entities who have suffered harm or injury due to the wrongful conduct of another person. In these cases, the injured party seeks compensation for the damages caused by the tortious act. 

Negligence is the most significant tort. Negligence is omitting to do something that a reasonable person would do or doing something that a prudent and reasonable person would not do to prevent harm. It is the failure to exercise reasonable care and skill that results in unreasonable risk of foreseeable injury. 

Before a plaintiff can commence a legal action, they must suffer ‘harm’. The plaintiff must establish (on the balance of probabilities) three things:

  1. Does the defendant owe them a duty of care?
  2. Is the defendant in breach of that care?
  3. Has the defendant’s actions caused the plaintiff to suffer loss or damage?

The Defendant

  • If the defendant succeeds in establishing their defence, the plaintiff has lost their claim and the case ends at this point
  • If the defendant fails to establish a defence, then the defendant has lost the case

Assessing a claim’s validity

The following steps outline the process insurers use to determine whether the plaintiff has a valid case.

Step 1: Does the defendant owe a duty of care to the plaintiff?

To establish a ‘duty of care’ the plaintiff must show that the kind of harm that they suffered was reasonably foreseeable and it was a result of the act/s or omission/s of the defendant. 

Step 2: Has the defendant breached their duty of care?

The plaintiff must then establish the defendant has breached that duty of care. In other words, the defendant’s acts or omissions failed to meet the standard of care required by law. 

Determining whether there has been a breach of the duty of care involves:

  • Determining what is a reasonable standard of care as a question of law; and then
  • Determining whether the defendant has breached that standard.

Step 3: Has the plaintiff suffered damage (a limiting factor)

The plaintiff must show that any actual loss or actual damage is of a kind recognised by the law and was suffered as a result of the defendant’s breach of duty.

Step 4: What defences will the defendant raise? 

The two most common defences under the common law are contributory negligence and voluntary assumption of risk. 

Step 5: What will the plaintiff recover?

Generally, in a tort action, the plaintiff will be seeking monetary compensation for the damage they have suffered. However, if the defendant does not have insurance or any assets, it is probably not worth pursuing in court. 

Next steps

To find out more about how insurance can help protect your business from the financial consequences of legal action over claims of negligence, please reach out at any time.  

Nathan Mauriello

Senior Client Executive – Professional & Executive Risks

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Honan Insurance Group Pty Ltd is now fully owned by Marsh Pty Ltd. To find out more, speak to your broker or read the announcement