How to read a business insurance PDS before you buy it

There are six documents for one quote. Which parts of the PDS actually decide whether I get paid?

Six documents, and only one decides the outcome

A typical quote arrives as a proposal, a schedule, a summary or one-pager, a Product Disclosure Statement, a general conditions document, and a broker’s cover letter. Only some of them are legally the contract. business.gov.au makes the point clearly: an insurance policy is a legal contract between you and the insurance company, and both sides need to comply with their responsibilities for the contract to be valid. An insurer must give you a product disclosure statement, which explains in clear words the terms and conditions of your policy.

Read in roughly this order: the schedule first (it tells you what is actually on and at what limit), then the PDS (what the sections mean, what is excluded, how claims are settled), then the general conditions (your obligations), and only then the marketing summary.

1. The schedule — nothing on it, nothing covered

This is the single most consequential page and the smallest. In an example business pack wording, the general provisions state that the policy document is only effective in respect of the sections identified in the schedule, and that unless a particular section is identified in the schedule as being “insured”, it is of no effect and no cover is granted under it.

So “trades business pack” on a quote is a description, not a coverage fact. What is on is the list of sections shown as insured, with the sum insured for each, the excess, and the period of indemnity. If a section is not there, nothing in the PDS about that section helps you.

2. The definitions — where the trigger actually lives

business.gov.au advises you to understand the definitions, noting they are often the words in bold or capital letters. They are usually right to flag this. In the example business pack wording:

• Damage means actual (not threat or fear of), sudden and accidental physical damage, destruction or loss. Gradual damage, deterioration and wear fall outside.
• Occurrence, in the liability section, means an event resulting in personal injury, property damage or advertising injury neither expected nor intended — with a series of events from one source deemed a single occurrence.
• Business Interruption Incident is defined by cause, including a malicious act, unauthorised access, human error, a network security failure, a programming error, or a reasonable shutdown to prevent those.
• Cyber Extortion Event is defined as credible threats to release, disseminate or otherwise misuse data, or to disrupt services.

Every one of those is a gate. If your incident does not match the defined word, the section does not respond, however reasonable the outcome feels.

3. The exclusions — read these before the cover

Insurers write cover first and exclusions second, so readers reverse the order and get surprised. Some from the example wording that change real outcomes:

• Wear, tear and gradual deterioration. General property excludes wear and tear, fading, scratching, gradual deterioration, corrosion, rust and oxidation, inherent vice and latent defect.
• Breakdown. Mechanical, hydraulic, electrical breakdown and electronic failure are excluded from property cover — a machine that fails internally is a different problem from one that is stolen or water-damaged.
• Contractual liability. The liability section excludes liability assumed under any contract, agreement or warranty, with exceptions including liability that would have been implied by law and incidental contracts.
• Specific asset exclusions. The same section does not cover damage to vehicles, motorcycles, trailers or caravans — your ute is not in the property cover.
• Prior knowledge and pending proceedings in cyber cover, and fines, penalties and punitive or exemplary damages generally.

4. Limits, aggregates and the excess — the arithmetic of a claim

This is where a policy that looks generous stops being generous. business.gov.au lists “any excess amount you’ll need to pay” among the things you should understand before buying.

From the example wording:

• The liability section will not pay more than the sum stated in the schedule for any one occurrence, and there is an aggregate limit for all occurrences relating to products liability across the policy period.
• The excess applies to each occurrence, and applies to defence costs as well as compensation — so it comes off the top, not only off the payout.
• In cyber cover, the insurer may have an aggregate limit that is the maximum aggregate amount payable under the policy for the period irrespective of the number of claims, claimants, or insuring agreements claimed under.
• In general property, there is a per-item cap on any one unspecified item, and a separate total for all unspecified items across the period.
• Certain perils are treated as one event: for limit purposes, all damage from events such as storm, flood, bushfire or earthquake within any 72 consecutive hours is deemed continuous and due to the same general conditions.

5. How the insurer settles — repair, replace or cash

business.gov.au lists this explicitly as something to understand. It is worth more thought than most owners give it. In the example wording, electronic equipment breakdown cover is settled at the insurer’s option, after consultation with you, either at value having regard to depreciation, obsolescence or depletion, or by reinstatement or replacement. Read this before you assume replacement of current model stock is the default on anything.

6. Your own obligations — the part that voids cover quietly

These sit in the general conditions and the claims conditions, and they are the ones that cause disputes. The wording makes clear that cover depends on your paying the premium and any applicable excess, and on your reliance on the written statements and declarations provided. From the cyber section you can see the shape of these obligations: an incident must be discovered by a member of the control group and reported pursuant to the general claims conditions. Delay, or a report from the wrong person, can be the difference between a covered claim and no claim.

business.gov.au also asks you to understand what you need to tell the insurer when you take out the policy, and what information you need to keep updated. An inaccurate declaration is a contract problem, not a claim problem — and it is discovered at the worst possible moment.

What to do next

Take the PDS to a licensed broker and put your six questions in writing. We are not a broker and do not hold an Australian Financial Services Licence, so we cannot interpret a policy for you or recommend one — but we can tell you which questions are worth asking, and which pages in your own quote are the ones that decide the outcome.

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Some pages contain a referral link to BizCover. If you use it and take out a policy, we may receive a commission at no extra cost to you. Referral arrangements do not influence which cover types we explain or how we explain them.

Sources

• business.gov.au — Manage your business insurance
• business.gov.au — Types of business insurance
• Chubb — Business Pack policy wording (example PDS)