What is Public Liability Insurance? A definition.
Public liability insurance is essentially a type of insurance that covers accidental injury or damage to third parties. This can include a business’s customers and clients, as well as someone in the supply chain, or even passers-by.
Public liability insurance can protect a business blamed for personal injury or property damage due to negligence or a mistake. It covers the legal fees, compensation claims, medical bills, and repair costs resulting from a lawsuit brought against a business. According to NimbleFins, public liability insurance is one of the most popular types of small business insurance in the UK and is typically part of a wider business insurance package.
For example, if a customer slips on a wet floor and is injured in the resulting fall, they can blame the business for not mopping up the rain that was tracked in or not putting out suitable ‘wet floor’ signage. In that case, the customer could take legal action against the business. If the business had public liability insurance in place, it would cover the legal fees to pay solicitors, court fees, and any settlement or compensation that the business is found liable to pay the injured customer.
Product liability insurance is often sold in the UK with public liability insurance as part of one package policy, called ‘public and products liability insurance’. Product liability insurance would cover injury or damage related to products that a business manufactured, designed, supplied, or sold. However, sometimes product liability is sold separately.
Examples of how product liability insurance can protect a business include protection when products have a design or manufacturing defect or a warning or labelling failure that has caused an unsafe product. In addition, a business with product liability insurance would be covered if a product causes personal injury or property damage and the business is sued.
Public and product liability can be important for large companies, sole traders, and everything in between. If a business has any in-person dealings with third parties, this cover is considered to be essential.
Here are some examples where public and product liability insurance could provide cover:
- In a shop, a customer trips over some stock that an employee left out, injuring themself. The customer sues for injury.
- A carpentry business is installing furniture at a customer’s home, and employees accidentally cause property damage. The customer sues and claims compensation.
- A market stall selling homemade pizzas is blamed for food poisoning when a customer becomes ill after eating the product.
- A dog toy has parts that break off easily when chewed, causing several dogs to become ill. The manufacturer is sued for the cost of vet bills.
Public liability insurance can also cover certain instances of non-physical damages related to unintentional consequences of intentional actions. For example, a wrongful eviction of a tenant. However, this type of coverage varies from policy to policy.
How much public liability insurance should I have?
The amount of public liability insurance needed depends on many factors, such as the size of the business and the risk presented to the public. For example, a tutoring business is less likely to inadvertently cause injury to a third party compared to a tradesman who works with dangerous tools in unpredictable environments.
There is a lot of variability between companies when it comes to size, type of business, and risk exposure. Determining the correct policy limits for public liability insurance is important to ensure that a business has appropriate levels of coverage.
Most policies range on average from £1 million to £10 million. Anyone uncertain regarding how much cover they need can engage the services of a professional to help. The amount of cover needed depends on many factors that will affect the outcome. Considerations like the industry, whether the business is a limited company or sole trader, and how much interaction the business has with the public will all need to be assessed.
Policy amounts are determined by weighing all the factors and calculating the perceived risk. For example, a high number of potential claims will require a higher amount of coverage to ensure a business is fully protected from legal proceedings.