Public liability insurance covers you if a compensation claim is made against you by a third party who believes that something you have done or failed to do has caused them to be injured or has caused their property to be damaged.
As well as covering any compensation awarded against you, any associated costs and expenses are also covered. If someone has had to take a taxi to attend a hospital appointment as a result of their injury, the taxi fare would be covered. If they have been unable to work as a result of their injury, their lost wages would be covered.
The legal fees are covered, too, so you don’t need to worry about having to pay an unexpected and potentially sizeable legal bill. This is the case even if your insurer successfully defends a claim that was made against you. And your insurer will defend any claims made against you so you don’t have to worry about dealing with legal issues.
What doesn’t it cover?
Like all forms of insurance, public liability insurance has some limitations.
First, it covers compensation claims arising from things that you have done or failed to do, but it doesn’t cover compensation claims arising from defects in any products that you have sold or supplied. To cover this type of compensation claim, you need products liability insurance. Products liability insurance is usually included with public liability insurance for security & alarms companies.
Second, it only covers compensation claims involving injuries or property damage. It does not cover claims where people are only claiming against you for purely economic losses. You should ensure that your public liability insurance contains a financial loss cover extension to address this issue.
Third, public liability insurance does not cover claims that arise as a result of professional negligence. If you supply and install an alarm system and something goes wrong that results in a compensation claim being made against you, your public and products liability insurance will cover you. But if you give advice or supply an alarm specification you would not be covered. You would need a professional indemnity insurance policy to cover this risk.
Finally, like most types of insurance, there will be a policy excess. This is the amount that you are required to contribute towards each claim. Sometimes you can reduce your insurance premium by opting for a higher policy excess, although obviously, that means that in the event of a claim your contribution would be higher.
Why do you need it?
Compensation claims can be expensive. If a serious injury is involved the compensation award can exceed £250,000 and by the time the costs, expenses and legal fees have been factored in, the eventual settlement figure can be much higher. Trading without public liability insurance can put your business at serious financial risk in the event of a compensation claim being made against you.
Another thing to bear in mind is that unlike employer’s liability insurance – which covers compensation claims made against you by your employees – it is not a legal requirement to have public liability insurance. However, many of the people you work for may insist that you have it as a contractual requirement. It can also be required as a condition of your membership of a professional association or trade body.
It is important to consider the indemnity limit in your public liability insurance policy. This is the most that an insurer will pay in the event of a claim, and the standard indemnity limit is usually £1,000,000. You may be required to have a higher indemnity limit as a condition of a contract with one of your clients, or a professional association or trade body may require you to have a higher indemnity limit as part of your membership criteria. It is possible to increase the indemnity limit by paying an additional premium.