What does public liability insurance cover?

Public liability insurance covers compensation payments and related legal costs if your business is held responsible for an injury to someone not on your payroll, or damage to their property.

This includes damage to possessions, bodily injury, or death caused by your business.

Cover is provided to pay successful compensation claims made by suppliers, customers or members of the public who come into contact with your business.

Public liability insurance doesn’t cover injury to your employees or damage to their possessions – you need an employers’ liability policy for this sort of risk.

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Examples of liability

An example of when public liability insurance would be used would be when a supplier who is delivering ingredients to a café trips on a loose floorboard, badly injures their back and claims damages against the owner.

Another might be when a consultant working in a client’s office spills a cup of coffee, damaging the client's expensive computer equipment, and triggering a claim for the cost of repair or replacement.

Again, a customer in a hairdressing salon could claim for compensation after being burnt by hair straighteners that an employee had inadvertently left switched on.

Compensation payments

In each situation, once the person or business sues for the damage or injury they’ve suffered, it is up to the courts to determine responsibility.

If a business is found responsible for causing the injury, death or damage, it will be ordered by the court to pay a certain amount of compensation.

The compensation payment will take into account factors such as the claimant’s loss of earnings, any medical costs, and the cost of replacing or repairing damaged property.

The public liability policy will also cover both your legal expenses and the claimant’s legal expenses, along with the compensation payment, up to the limit of your policy.

Cover levels

You choose your cover limit based on the level of risk your business is exposed to and the possible extent of compensation payments.

The options usually range from £1 million of cover up to £10 million, as compensation claims can be extremely high. The policy limit is the maximum amount that the insurer will pay for a single event, or the maximum that they’ll pay in total for several events in one year.

The size of the cover limit will also affect the amount of premium you have to pay – the higher the limit, the higher the premium.