As well as covering any compensation that you are required to pay, they also pay any associated costs and expenses. Any legal fees that are incurred are also covered.
Importantly, your insurer will also help you handle any compensation claims that are made against you. This means that don’t have to deal with any legal issues.
So, what exactly does each type of liability insurance cover, do you need these types of liability insurance and, if so, why?
Public liability insurance cover
Public liability insurance covers compensation claims made against you that arise because you have done something or failed to do something.
Something you have done could be accidentally setting fire to a third party’s property through careless use of a blowlamp. Something you have failed to do could be failing to warn people that a floor is slippery because you’ve just cleaned it, leading to someone being injured because they’ve fallen.
This type of insurance usually comes with products liability insurance, which is the same, but rather than covering compensation claims arising out of something you have done or failed to do, it covers claims arising due to a defect in a product that you have sold or supplied.
Standard public liability insurance usually only covers compensation claims that involve and injury or property damage. You should make sure that your public liability insurance policy includes a financial loss extension so that it also covers compensation claims involving purely economic losses.
Why do you need public liability insurance?
Compensation claims can be expensive to settle. A claim for a serious injury can easily result in a compensation award in excess of £250,000, and by the time the associated costs, expenses and legal fees have been included, the final cost can be much higher.
As such, it’s unwise to consider trading without this type of insurance because a serious claim could bankrupt your business. In fact, there are calls to make this type of insurance a legal requirement like employer’s liability insurance and motor insurance.
Even though it’s not a legal requirement, often if you don’t have public liability insurance you will be unable to work. Many professional organisations insist that you’re insured as a condition of membership, and some of your clients may also make it a contractual condition that you’re insured.
Professional indemnity insurance cover
Professional indemnity insurance is similar to public liability insurance, but rather than covering compensation claims arising from things that you have done or failed to do, it covers claims arising as a result of professional negligence.
Do you need professional indemnity insurance?
Although every business should have public liability insurance, it’s not quite so clear-cut where professional indemnity insurance is concerned and not all businesses will need this type of cover.
If you are providing advice, designs or specifications for a fee, you need this insurance to protect your business against compensation claims made against it. If you are not providing advice, designs or specifications, you don’t need this insurance.
There is a grey area if you’re providing advice designs or specifications for free, but in circumstances where a fee would normally be charged. As an example, you could be a gardener providing free garden designs in the hope that the people you were giving the designs to would be using you to implement them. In this situation, you would need professional indemnity insurance.
As with public liability insurance, professional indemnity insurance is not a legal requirement. However, you may be required to have this type of insurance as a condition of membership of a professional organisation or as a contractual requirement imposed by one of your clients.