While running a small business can be a dream come true, all businesses face some exposure to risk—no matter what type of work you do. Public Liability insurance can help protect your business from a few types of common claims from third parties.
- What is Public Liability Insurance?
- What does Public Liability Insurance cover?
- Common Exclusions
What is Public Liability Insurance?
Public Liability insurance is one of the most common types of business insurance, bought to protect a business financially from the litigation costs and compensation payments that can follow certain types of accidents. If your business unintentionally causes bodily injury or property damage to a third party, public liability can cover:
- Legal costs
- Compensation payments
- Medical bills
- Repair costs
If a client, customer, vendor or member of the public is accidentally injured or their property damaged by your business (this includes damage resulting from actions by you or an employee, as well as from your product if product liability is a component of your cover), then Public Liability insurance can help protect your business if it is brought to court.
- You own a small gift shop that sells locally-produced, handmade artisan products. To keep up with a weekend rush you decide to restock your shelves with some of your most popular items. A customer trips over a box you left in an aisle and falls. He injures his shoulder which prevents him from working and decides to sue your shop for damages. Your Public Liability policy will cover any legal costs and settlement claims up to your coverage limits.
What Does Public Liability Insurance Cover?
Public liability insurance covers compensation payments and associated legal costs for three types of accidental damage that could be caused by your business:
- Bodily injury
- Property damage
- Wrongful arrest
If your business is sued over any of these third-party damages, your Public Liability insurance underwriter will cover legal defense costs as well as compensation payments.
Public liability is third-party insurance that covers damage to members of the public (e.g., your customers or passersby), it does not cover damage to you, your employees or your business.
Public Liability insurance will pay for damages if your business (including you or one of your employees) causes property damage to someone else's property.
- You have a plumbing business that installs the sink in a domestic kitchen renovation. Unfortunately, a fault in a seal means the kitchen floods and damages the wooden floors and surrounding cabinets.
- You run a small cleaning business. While an employee is cleaning someone's home, a valuable vase is accidentally knocked over and broken.
However, Public Liability insurance does not cover damage to your business's property—it is a third-party cover so just covers property not associated with your business. (Damage to your business would be covered by commercial contents or buildings insurance).
- You own a takeaway restaurant, and a fire starts in the deep fryer. The fire spreads to a neighboring salon, damaging their storeroom. Your Public Liability Insurance would cover damage to the salon's property (e.g., the building and contents), but would not cover damage to your business.
Public Liability insurance covers your business if a third party (e.g., a customer or vendor, but not an employee) suffers a bodily injury resulting from your business operations or whilst on your business premises. Your underwriter will cover costs to investigate and defend a claim (e.g., solicitor fees, court costs, etc.) as well as any compensation payments and medical fees.
- You own a dog walking company. One of the dogs in your care jumps on an elderly person in the park, knocking them down and causing them to break a hip.
- You run a bouncy castle business. One of the anchors holding a bouncy castle to the ground fails and the inflatable tips, injuring some of the children inside.
It's important to understand that bodily injury on a Public Liability insurance policy does not cover you or your staff. If you or an employee are injured at work, a combination of Employers' Liability and Personal Accident/Personal Injury insurance can offer protection.
Product Liability insurance covers legal fees and compensation payments that you're legally liable to pay if a product your business has supplied (e.g., manufactured, distributed or sold) results in injury or damage to a third party. This coverage applies to incidents that occur away from your business premises; and in fact claims can be brought up to 3 years after a product is used.
Product Liability insurance is often sold as a part of a Public Liability policy, but it may be offered as a separate, extra coverage that a business buys on top of their Public Liability insurance. It is rarely sold on its own without Public Liability.
- You are a market trader who makes and sells homemade curry sauces at fairs. After selling your famous Jalfrezi at a fair one day, people fall ill and blame you for food poisoning.
- You manufacture handmade shoes. The heel on a pair of your high heels snaps off, causing a woman to fall and injure herself.
In addition to bodily injury and property damage coverages, Public Liability insurance also typically covers awards of damages for several non-physical injuries. These coverages will be specifically defined in your Public Liability insurance policy wording. Non-physical types of claims cover the unintentional results of intentional actions (vs. the bodily injury and property damage clauses of a Public Liability policy that cover negligence accidents, or unintentional actions).
- Wrongful arrest: A clothing shop accuses a customer of shoplifting and calls the police, who subsequently arrest the customer. After reviewing the CCTV footage, it becomes clear that the customer did not shoplift, and was wrongfully arrested. The customer sues the shop.
- Wrongful eviction: A tenant is forced to leave their home by a landlord who has not followed proper legal procedures, such as getting a court order and using bailiffs to execute the eviction. The tenant sues the landlord for illegal eviction.
If your company is sued for damages that are covered by your Public Liability insurance, the policy will cover the costs of your legal defense, including solicitors fees (e.g., to investigate or defend a claim against your company), court costs, etc.
Public liability cover for legal fees and expenses may be subject to a separate limit that is in addition to the injury and damages limit. For example, a Public Liability policy might have a £5 million limit for compensation amounts owed and a separate £100,000 limit for legal expenses incurred defending a claim.
- You hold a Public Liability Insurance policy with £2 million of liability cover, plus £100,000 of legal defense cover. Your business is sued for bodily injury and found liable for a judgment of £500,000. Your legal defense team incurred £75,000 of expenses while defending your business. Your Public Liability Insurance underwriter would pay for the £575,000 in compensation and legal costs.
Public Liability insurance also covers your business financially if the NHS claims for expenses they incur such as hospital treatment and/or an ambulance call out.
What is Not Covered by Public Liability Insurance?
There are many common exclusions to Public Liability insurance you should be aware of. They include but are not limited to the following:
- Your business property and contents. Public Liability insurance only covers damage to the property of third parties. To cover your business premises and contents, you need Commercial Property insurance (building and contents, as appropriate).
- Design and advice. If you are paid for your advice, instructions or designs, these are not covered by Public Liability insurance; instead you need Professional Liability insurance.
- Employee injuries. Public Liability insurance only covers bodily injuries to third parties. To cover employees who are seriously injured or even killed by a workplace accident, you should buy Personal Accident insurance. Also, employers' liability is required by law if you have anyone working for you.
- Road traffic accidents. Your commercial auto insurance will cover motor vehicle claims related to your business.
- Damage caused intentionally. Any injury or damage that was caused intentionally is excluded.
- Crimes: Fines, penalties or compensation payments levied by a criminal court are not covered.
- Recalls and defects: Public Liability insurance won't cover the cost to remedy defects in a product, for instance via a product recall.
Public Liability insurance is not required by law, but it is important for any business that interacts with members of the public, from customers to vendors. Any contact with a third party can lead to a potential accident, exposing a business to the risk of financial loss. Businesses that have the greatest need for Public Liability insurance are those who have the most contact with the public, for instance pubs, cafes, restaurants, shops, salons and builders or tradesman.
Additionally, Public Liability insurance may be required by some trade organisations (e.g., plumbers) or customer contracts. For example, a commercial property development project might require electricians working on the project to have a minimum amount of Public Liability cover. Or a caterer might be required to have Public Liability cover in place to work in certain venues.
Each business is different, so the level of Public Liability insurance cover you need depends on your business structure and the line of work you do. For instance, a business related to building works might have a higher need for Public Liability cover than, say, a tutor. When deciding what amount of Public Liability cover is right for your business, consider the type of work you do and the size of possible compensation claims.
The limit on an insurance policy is the maximum amount that an underwriter will pay in claims. Your Public Liability policy may have separate limits "for any one occurrence" and "during any one period of insurance". A "per occurrence" limit is the maximum that an insurer will pay for a single claim, while the per period of insurance limit is the maximum they will pay for the policy year, regardless of the number of claims. Although other amount may be available, the most common limits in the UK Public Liability insurance market are:
- £1 million
- £2 million
- £5 million
- £10 million
Yes and no—it depends on the type of claim. Bodily injury claims typically have no excess. However property damage claims frequently have an excess which can range from £100 up to £750 or more. Some categories of claims might have separate excesses, for instance damage due to water damage.
The average cost of public liability insurance for small businesses in the UK is £118 a year or £14.30 a month. However, as Public Liability is priced based on the specific risks of your business, rates for your business may be lower or significantly higher than this average.
When quoting a Public Liability insurance product, an underwriter will take into account many factors, including:
- Level of cover
- Size of your business
- Line of work
- Number of employees
- Business structure (e.g., sole trader, partnership or limited liability company)
- Number of directors or partners
- Claims history
- Additional coverages
Businesses that face higher risks will pay higher premiums than businesses viewed as lower risk, all else equal. For example, a builder will likely pay higher premiums than a photographer. Insurance underwriters perform their own internal risk calculations and so you may receive very different quotes from different insurance companies, even if the cover is equivalent between companies.
In fact, quotes could have more to do with an insurer's internal risk management than with your business specifically. For example, if an insurer decides they have written too many Public Liability insurance policies for contractors lately, their risk appetite for writing new contractor liability policies may be quite low. As a result that company's quotes for new contractor liability policies could be much higher than the rest of the market.
Considering all of this, it is always worth comparing how different insurers will price Public Liability cover for your business—whether you are renewing or buying your first policy for a new small business.
There is no "general" liability insurance product in the UK. To provide a wide range of liability coverage, you can buy Public Liability, Product Liability (which is sometimes included in Public Liability policies) and/or Employers' Liability insurance.
Public Liability insurance can help protect you and your business financially if a member of the public sues you after accidental injury or property damage due to your negligence. It is widely purchased by a wide spectrum of businesses from tradesmen to cleaners to shops. As compensation claims can run into the thousands or millions of pounds, most business owners look to include Public Liability as a critical component of their business insurance package.