Public liability insurance (PL insurance) is a business safeguard against compensation claims by third parties who allege they were injured or had property damaged as a result of the policy holder’s negligence.
It is needed by any business which works with or near members of the public. It may not be that third parties visit a business’s office, but the nature of its trade means staff work in public spaces or with members of the public.
Some examples of businesses that should take out public liability insurance include shops, restaurants, cafes, pubs, bars, builders, electricians, plumbers, contractors, hairdressers, beauty salons, scaffolders, sports instructors, event managers, event venues and more.
These can be summarised as:
- Organisations that have visits from customers at their business premises.
- Businesses that work in or on people’s homes.
- Businesses that operate in public.
For example, a personal trainer may not have people coming to their registered place of business, but they may carry out classes in a park, which could see a client fall on some equipment left in the grass and have an injury. Or an instructor could damage a passer-by’s belongings as they walked past the class.
A shop is a more obvious scenario where a member of the public could injure themselves. They will enter the place of business, and any injury or property damage that happens inside that shop could result in a compensation claim.
A business can secure itself with as much or as little cover as it wishes, with policies largely having a maximum claim amount of £1 million, £2 million, £5 million and £10 million.
The only type of business that is legally required to hold public liability insurance is horse riding schools, although many industry bodies require a set amount by members. Plumbers and electricians are just two of the trades where businesses require public liability insurance.
PL insurance definition
PL insurance (public liability insurance) is third party insurance that covers the legal expenses and compensation or fees if a member of the public is injured or has property damaged at a place of business.
PL insurance will fund medical bills, legal costs, compensation payments and repair bills.
PL insurance applies in the result of bodily injury, property damage and wrongful arrest.
This is one of the most popular types of business insurance on the market, as the cost of compensation claims can easily run into tens of thousands of pounds, if not more. Research by insurance experts NimbleFins found there were 83,511 public liability settlements agreed on in 2019/20.
EL and PL insurance
Employers’ liability (EL) insurance and public liability (PL) insurance cover two different groups of people. EL insurance is a legal requirement that protects a company when a member of staff is injured or dies where work is to blame. Meanwhile, PL insurance is not a legal requirement and protects a policy holder from the costs of compensation and legal representation if a third party is injured or has property damaged.
Both insurance policies fund legal costs defending or mitigating against a claim, as well as any damages awarded. But unlike PL insurance, EL insurance does not cover damage to belongings, it is just the health and wellbeing of workers.
Employers’ liability insurance is required by any business that employs staff, and this is not just permanent workers, casual and zero-hours contractors should also be covered by employers’ liability insurance. If they aren’t, a business can be fined up to £2,500 for every day it is without a policy.
There are a few exemptions for employers’ liability insurance which are explained here.
Employers’ liability insurance is required by almost all businesses that hire staff, and public liability insurance is also compulsory for many types of businesses.
The Association of Plumbing and Heating Contractors Limited (APHC) requires public liability insurance with a minimum of £2 million cover, against plumbing, heating and mechanical services. This is on top of employer’s liability insurance and professional indemnity insurance. The Electrical Contractors’ Association (ECA) also requires a minimum cover of £2 million in public liability insurance.
PL and PI insurance
Public liability (PL) insurance and professional indemnity (PI) insurance are two very different policies. While both cover compensation claims and associated legal costs, PI insurance is used when clients accuse a business of costing them money due to negligence or poor work.
Professional indemnity (PI) insurance is not needed by all businesses but is wise to consider if a business trades its knowledge, expertise, skills or craftsmanship.
The below industries are strongly advised to take out professional indemnity insurance, and some are bound by industry bodies to take out cover if they wish to be members, for example, architects and plumbers:
- Financial advisors
- Insurance brokers
- IT specialists
- Healthcare professionals
- Planning and surveyors
- Risk management
- Design and construction
- Interior designers
- Coaching, training and education
- Creative industries with briefs that are open to interpretation, where it may be claimed direction was not followed.
Other professions should also consider professional indemnity insurance: Writers, PR agencies, advertising agencies, marketing agencies, business analysts, freelancers, event managers, mortgage brokers, recruiters, security consultants, software developers, landscapers, tradesmen.
PI insurance covers many scenarios where it could be claimed the work a business did cost a client money, including:
- Losing a client’s documents.
- Sending a client a virus by mistake.
- Sharing confidential information, either by mistake or by a dishonest employee.
- Breaching copyright, trademarks or intellectual property on behalf of a client who is then sued for compensation or invoiced.
- Negligence where a genuine mistake is made or incorrect advice is given.
- Acts or omissions from subcontractors.
- Defamation if a client or third party accuses a business of slander or libel.