- What is public liability insurance?
- What does the law say if I’m self-employed or working as a sole trader?
- Is public liability insurance only for larger companies, or is it relevant to businesses of all sizes?
- I am a sole trader / self employed, do I need public liability insurance?
- I don’t earn much, do I still need public liability insurance?
- What are the circumstances when I need public liability insurance?
The law doesn’t require you to have public liability cover, but that doesn’t mean you don’t need it in certain circumstances. The only compulsory insurance cover you need is employers’ liability insurance if you employ staff (even if they are volunteers).
In this article, part of our Public Liability FAQ series, we answer the question ‘Is it law to have public liability insurance?’ and address related queries to help you understand your needs.
Public liability insurance is a type of business insurance that is designed to protect you and your business if something your business does, or fails to do, causes injury to a member of the public or a client, or causes damage to their property. This could include members of the public or your clients themselves.
Incidents covered can range from minor injuries like someone twisting their ankle to severe, life-changing injuries, or even death.
If you or your business is found to be at fault, your public liability insurance will pay the damages, compensation, and legal costs involved.
Again, you are not legally required to have public liability insurance. However, there are circumstances where you will still need to be insured. For example, if you employ anyone you will need employers’ liability insurance.
Public liability insurance is important for any businesses that have contact with the public. This could be on your business premises (such as a shop), at a client’s premises (like a customer's house), or even when you are working out and about in public.
Typical types of businesses who should consider public liability insurance include:
- Tradesmen including carpenters, electricians, builders, plumbers, etc.
- Shops, restaurants, hairdressers, tattoo studios
- Professional services where the public come into the office, such as lawyers or accountants
- Gardeners, professional cleaners, dry cleaning services, etc.
However, this list is not exhaustive. Anyone who comes into contact with the public in the course of their work should consider taking out insurance. Even if clients come to your home, you should still consider it.
The fact that you are a sole trader rather than a limited company doesn’t determine whether you need public liability insurance. It’s primarily about whether you come into contact with the public.
However, if you are a sole trader, you may have a lower turnover and smaller contracts than a limited company. This might mean your premiums are slightly lower as a result, but the need for cover remains if you interact with the public.
As a self-employed person, you carry more personal risk if you can't pay an order for damages; it is you who will have to pay – not a separate company.
If you come into contact with the public you need public liability insurance, however modest your earnings may be.
The potential cost of a claim is not linked to your earnings; even a seemingly small incident could lead to a substantial claim. The same is true even if you only ever contract with other small businesses or individuals – public interaction is the key factor.
There are three main situations which may require you to have public liability insurance, even if the law does not:
i. If you come into contact with the public
If you work with the public, or come into contact with the public, it’s important that you have the appropriate insurance.
The types of trades and businesses typically affected include: decorators, plumbers, electricians, painters and decorators, builders, and store owners.
Why is it important?
Public liability claims are relatively common, and accidents do happen, even if you are always careful. If a member of the public suffers injury or damage as a result of coming into contact with your work, they may be able to bring a damages and compensation claim against you personally (if you are a sole trader) or your business (smaller limited companies).
Even a small incident can result in a substantial claim. Along with legal fees, this could be financially devastating for you and your business. Damages awarded in a successful claim can total in the tens or hundreds of thousands of pounds – perhaps even more.
Examples of claim costs can include:
· Lost earnings for the time they are unable to work
· The cost of transportation to and from hospital and outpatient appointments, if they are unable to drive
· Treatment costs
· Legal fees
Without insurance, you or your business will have to pay these costs. If you can’t, your business and even personal assets could be at risk.
Public liability insurance will protect you if a claim is made against you. Without it, a successful claim against you could financially cripple your business and cause significant worry and time dealing with the claim itself, instead of focusing on your work. Even a small claim may result in an order for you to pay thousands of pounds in damages.
Dealing with legal proceedings yourself, or paying for a solicitor, will also add to the burden if you are uninsured.
ii. If your contract requires it
Some large companies and public sector organisations will require their contractors to have public liability insurance as part of their contract. Government and local authority contracts will normally insist you have public liability insurance cover of at least £5 million.
If you want to do business with such organisations, particularly in sectors like construction, you will need to have it or you will be in breach of your contract. Most contractors who require public liability insurance will ask for proof that you have it before you sign or agree to the contract.
Is it legal for larger contracts to insist on public liability insurance?
It is common and accepted practice for larger organisations to insist their suppliers have public liability insurance, and they may also specify a minimum level of cover, such as £5 million.
While they cannot legally force you to take out cover, they can legally refuse to offer you the contract if you don’t have it. If you are not insured, but claim to be when signing a contract, you would be in breach of contract.
What if it is in my contract, but I do not have or want insurance?
If you don’t have the required insurance, you either won’t win the contract in the first place, or you will be in breach of contract. If you are in breach, the contractor may be entitled to end the contract with you.
In some cases, they could also bring a claim against you for breach of contract in the civil courts, potentially seeking damages.
By refusing contracts that require insurance, you may miss out on larger and potentially longer-term projects, and it could undermine your business’s credibility in the eyes of potential clients who might doubt your financial stability and professionalism.
If your public liability insurance policy has expired, you will need to renew it in order to keep these types of contracts.
iii. If your trade association requires it
Many professional trade associations require their members to have public liability insurance as a term of membership.
Trade associations cannot force you to take out cover, but they can refuse you membership or prevent you from renewing membership if you don’t comply with their insurance requirements. If you don’t have it, you may not be allowed to become or remain a member.
Not belonging to your trade’s association can affect your reputation as a professional tradesperson or business. This may mean that you cannot use the trade association logo in your advertising, and it could affect your professional standing in your industry, as well as losing out on valuable membership benefits.
Having public liability insurance is generally seen as an important part of demonstrating that you are a respectable and professional business.
You may question the cost until you face a claim, but if you are faced with a claim for thousands or even hundreds of thousands of pounds, then suddenly your premium is going to feel very worthwhile and could save your business from financial ruin.
Having public liability insurance also provides peace of mind. If you consider the potential costs of a claim against the relatively modest cost of a policy, it is generally considered to be a worthwhile investment for peace of mind and business protection.
The level of cover you need will depend on the specifics of your business and the type of work you undertake.
If you take on high-value and complex jobs, you may need more cover than a sole trader involved in smaller projects.
It is common for small businesses in the construction industry to have public liability cover of between £2 million and £10 million.
The cost of public liability insurance is not fixed and depends on several factors relating to your business and its risk profile. Factors that influence the cost include:
· The sort of work you do
· Where you do it
· How many people (if any) you employ
· What level of cover you need
The best way to find out the cost for your business is to apply for a quote, often available online.
If someone brings a claim against you or your business for damages or compensation, not having public liability cover would mean you are personally responsible for paying your own legal fees and any damages awarded against you.
The money would probably have to come directly out of your business funds. If you are a sole trader, it would come directly out of your own pocket.
It would also likely mean you having to personally find the time to deal with the claim, manage legal proceedings, and potentially attend court, rather than focusing on running your business and taking on work.
In the end, it could cost you a great deal of money – and possibly your business.
You can normally apply for public liability insurance and get a quote online. The application process will typically ask for details about your business to calculate your premium.
