- Is it normal for larger clients to insist on public liability insurance?
- Is public liability insurance worth the cost?
- How much public liability cover do I need?
- How much does public liability insurance cost?
- If someone made a claim against me, would I have to go to court?
- How will it affect my business if I can’t pay a claim?
Public liability insurance covers your business in respect of legal claims made by someone for something your business has done (or not done) which resulted in personal injury, death, loss, or damage. In this video, the first of our Public Liability Explainer series, we answer the question ‘What is public liability insurance?’.
As a business, you can find yourself facing a claim for any number of reasons. If your work regularly brings you into contact with the public, you should consider taking out a policy – accidents can happen, even in less public-facing roles.
Many tradespeople and small businesses in the construction industry find public liability insurance to be an essential protection. It is designed to protect your business against unforeseen events and situations:
Personal injury
Public liability will cover you for an injury caused to a member of the public, client, or contractor, because of something you have or have not done. If the injured person has had to take time off work, or is no longer able to work, your policy may cover their loss of earnings.
Damage to property
This may include damage to clothing and possessions, or even more substantial property damage, for instance, if you or your team accidentally damaged a client's parked car while working on site.
Legal fees
When someone brings a claim against you, you nearly always need a lawyer. Even if you admit fault straightaway, there will be legal fees involved. If the case is complex or contested, these costs can add up significantly.
With public liability insurance, your insurer will typically allocate a lawyer to handle any claims on your behalf, managing all court paperwork, defence, and evidence.
Public liability insurance is not the same as other types of insurance essential for businesses, such as professional indemnity insurance or employers’ liability insurance. While public liability is crucial for third-party claims, it's important to understand its limitations.
It does not cover you against:
- claims for loss or damage by your employees. (This is where employers’ liability insurance is essential. It is a legal requirement if you employ anyone), nor
- costs that arise if you have made a mistake or are negligent with work for a client that causes them a loss. (Professional indemnity insurance addresses this aspect. It is particularly relevant if you provide professional advice or services).
It could be a client or customer, a contractor, or a member of the public – either for themselves or in respect of their property.
Anything that leads to an injury or loss, which could reasonably be proved to be your fault due to something you did or did not do.
Depending on the circumstances, the claim itself could include compensation for an injury, loss of earnings, medical expenses, damage to clothing or possessions, or damage to a vehicle.
Example: Accident in a shop
If a customer slips on the floor of your store and suffers a back injury, and a warning notice that the floor was wet was not displayed (i.e. something you did not do) it could lead to a claim against you.
Example: Construction site accident
If you accidentally dropped a piece of equipment from scaffolding which caused injury or damage to someone or something below (i.e. something you did do) this may result in a claim.
Example: Client tripping over tools
Imagine a client trips over your tools left out of place and breaks their wrist. They may be unable to drive or work for months, incurring lost earnings and expenses like taxis to hospital appointments. You could be held liable for these costs.
Example: Equipment left on the floor
Consider leaving a piece of equipment on the floor, and a member of the public trips, breaks their ankle, and requires surgery, leading to three months off work and associated medical and care costs.
If deemed to be a result of your negligence, a successful claim could encompass significant expenses.
For most businesses, it is not a legal requirement to have public liability insurance. That does not mean you can ignore public liability insurance, as a claim could still be brought against you and the financial repercussions could be severe.
While public liability isn't legally mandated for most, it is often seen as a necessity, not least because many clients will expect you to have it.
However, for employers in the UK, employers’ liability insurance is a legal obligation.
Having public liability insurance may be a contractual requirement for working with larger businesses, public sector organisations, and even smaller clients who want reassurance of your coverage before contracting you. Many trade associations also require members to hold public liability insurance.
Beyond meeting contractual and membership obligations, public liability insurance is crucial for financial protection. If someone makes a successful claim against you, the combined costs of damages, compensation, and legal fees can quickly escalate, potentially reaching thousands of pounds. Without insurance, your business and personal assets could be at serious risk.
If your business provides a skill or service which involves contact with the public, then you should seriously consider public liability insurance – irrespective of what kind of business it is. This is particularly pertinent in the construction industry where on-site accidents can occur.
Even if you do not directly work with members of the public daily, accidents can still happen. If you are in any doubt, check with your trade body or association as to what is standard within your industry.
Most moderate-sized and large contractors, as well as many public sector bodies and clients in construction, will require you to have a certain level of public liability insurance before they will work with you.
Having public liability insurance in place will signal to potential clients that you adopt a professional approach and can be trusted to work responsibly.
Consider this: if a claim is successful against you, even seemingly minor injuries can lead to substantial costs. Medical treatment for a broken ankle alone could range from £12,000 to £65,000, not to mention lost earnings, legal fees, and other related expenses.
Claims for injury or damages can easily run into many thousands of pounds. They have the potential to put small businesses in serious financial difficulties, and if you are a sole trader and unable to pay a claim, your personal assets, including your home, could be at risk.
For limited companies unable to pay, liquidation proceedings could be faced, and in either case, your credit rating would be significantly affected.
Before you dismiss the idea of insurance due to cost, carefully consider whether it is a risk worth taking not to have cover. Insurance offers not only financial security but also peace of mind, knowing you are protected should the unexpected happen.
This will depend on the nature and size of your business, and the risks associated with that work. The complexity of your work and where you operate are also factors.
Some public sector bodies and clients in construction may require at least £5 million public liability protection. For most tradespeople and small businesses, somewhere between £1 million and £10 million will typically be appropriate. For small construction businesses specifically, between £2 million and £10 million is common.
The greater your exposure to the public, and the perceived risk associated with your trade, the more cover you are likely to require. For example, a construction business is generally considered to need higher cover than a painter and decorator.
The cost of public liability insurance is influenced by several factors including:
- How many employees you have: More employees can increase risk exposure.
- How much cover you need: Higher levels of cover will generally mean higher premiums.
- The type of work you do: Riskier trades will typically have higher costs.
- Where you work: Location can sometimes affect premiums.
The most effective way to determine the cost for your specific business is to obtain a personalised quote from an insurer, which you can often do quickly and easily online.
When you have public liability insurance, your insurance provider will usually manage the claims process entirely, allocating a lawyer to deal with any claims on your behalf. This includes handling all court paperwork, filing your defence and evidence, and attending court if necessary.
Without insurance, you would be responsible for managing this complex process yourself.
The consequences depend on your business structure. If you operate as a sole trader and cannot pay an order for damages, you are personally liable. This means the claimant can take proceedings against you to recover the money, potentially putting your personal assets, such as your home, at risk.
If your business is a limited company and unable to pay, you could face liquidation proceedings.
In either scenario, your business and personal credit rating would be significantly and negatively affected, impacting future financial opportunities.