Public Liability Insurance: An introduction

What is Public Liability Insurance?

Public liability insurance covers a business for claims made by third parties for damages, should they be injured by you or your firm, either at a customer's site, or on your own premises.

In addition to covering businesses against accidents and injuries sustained by members of the public, it also protects against damage to property caused by your company.

And it can be particularly useful if you run a business from your home and your customers visit you there.

As well as paying out for damages, public liability insurance covers you for legal fees and costs, including those that the NHS is now allowed to claim when personal injury compensation is made, under the Injury Cost Recovery Scheme.

Meeting with customers in the course of business has its share of both triumphs and problems.

Whether the public is coming to your premises, or you are going out and about in the course of your work, it can involve all kinds of professional and logistical challenges.

But whatever your business, what's important is to be able to concentrate on what you do best - providing your services and skills - without having to worry about unforeseen incidents.

Public liability insurance is not a legal requirement, although most businesses find it reassuring to have the cover in place, as Toby Langford, portfolio underwriter at MORE TH>N BUSINESS, explains:

"If you are going into people's homes you may cause damage or may leave something lying around that someone will trip on. You could be sued for hundreds of thousands of pounds - it comes down to whether that person is a high-earner with dependants," he says.

"They might need care for life and you will be paying for all their lost income - potentially you are going to go out of business if you don't have cover. That's why it is seen by a lot of businesses as the bare minimum cover they will need."

Who needs it?

If you are a small business, or are self-employed, and you offer goods and services to third parties - either to the public, or to other firms - then you are likely to benefit from public liability insurance.

In the experience of MORE TH>N BUSINESS, professionals who commonly take out public liability insurance include general builders and plasterers, painters and decorators, homeworkers such as accountants, carpenters and joiners, electrical contractors and gardeners.

How much does public liability insurance cost?

In 2007, the UK insurance industry paid out £6.2 million every day in liability claims, covering such things as accidents at work and injuries to the public on commercial premises.

Public liability insurance can cost as little as a few pounds a month (plus insurance premium tax), but your premium will depend on the type of business you run.

The minimum cover is usually £1 million, with small businesses often having a limit of £2 million or £5 million. Sub-contractors working with central or local government may be required to have cover for £10 million or more.

Public liability in action

Here's an example of where public liability insurance has been used by a MORE TH>N BUSINESS policyholder.

A decorator was undertaking a contract at a fine hotel. It was alleged that they had wound a curtain around a wall light, in an attempt to keep the curtain out of harm's way.

Unfortunately the heat from the light scorched the curtain, which had to be replaced as a result. The hotel is fitted with expensive matching curtains and cost of the resulting claim could exceed £10,000.

As well as covering the final settlement, MORE TH>N BUSINESS is helping its policyholder to challenge some elements of the alleged damages.

What doesn't public liability insurance cover?

It is important to remember that public liability insurance is designed only to cover you against third party claims.

If you are an employer, you are obliged by law to have employers' liability compulsory insurance (EL) in place, protecting you against damages and legal fees should a member of staff be injured through the fault of your business.

For that, businesses are required to be covered for at least £5 million, though most insurance policies provide a base level of £10 million cover.

This can be used to insure against claims for the most common accidents experienced by employees, including falling from an un-footed ladder, hurting their back from lifting heavy objects, or severing a finger when using a circular saw.

However, not all businesses need this cover. If you are a limited company with only one employee, or are a family business, you may not need to take out EL, though many still do for added security.

And you need to stay on top of the situation.

"A lot of small businesses are becoming limited companies - as soon as this happens, everything changes," warns Toby.

"Overnight you change from a sole trader or partner to an employee."

For more information about whether your business is exempt, read the Employer's Liability (Compulsory Insurance) Act guide for employers.

If your business sells products, you may need products liability insurance - most insurers provide this as part of a package with public liability cover.

Making a claim on your public liability insurance

Finally, if the worst happens, and you are faced with someone who says they are going to make a claim, the first thing to do is to tell your insurance provider.

"As soon as someone says 'you shouldn't have done that - I'm speaking to a solicitor', tell your insurer straight away," says Toby.

"You don't want to prejudice anything by sending out your own letter - let your insurance provider handle it."

Related article:

What is professional indemnity insurance?