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Most small companies come into contact with the general public, even if this isn’t part of their core work. Unfortunately, rubbing shoulders with others can lead to accidents, which could result in a legal claim.

In this guide, we look at how public liability insurance can protect you and your business from a costly legal claim brought by a third party.

What is public liability insurance?

Public liability insurance protects businesses against compensation claims and associated legal fees brought by anyone else who doesn’t work for you. It covers claims for personal injury, death and damage to property stemming from an accident at your place of work. 

In this case, your place of work doesn’t just mean your business premises. Incidents in public areas are also covered if they relate to your work. For example, a roofer could drop a tile on a parked car, or a member of the public could trip over a hose you’re using to clean office windows and twist their ankle.

Likewise, public liability could even cover you if you were on your way to a meeting and put your bag down in a train aisle, causing someone to trip and injure themselves. 

Interestingly, this type of business insurance also covers damage or injury caused by a failure to act. For instance, a plumber who forgets to turn off newly fitted taps after reconnecting the mains, thereby flooding the kitchen.

Public liability insurance protects your business financially if a member of the public sues you over an injury or damage to their property caused by your company’s activities. It’s particularly important if your business deals with the general public, either on your own premises or elsewhere – for example, if you run a shop or visit people in their homes. 

What does public liability insurance cover?

Public liability insurance covers the cost of legal fees and any compensation awarded if someone makes a claim against your business due to an injury or damage to their property. This could be due to an incident on your business premises or the services you’ve provided.

For example, if a client visits your business, trips over and injures themselves, they might decide to sue your business. If you’re found at fault, you might need to pay damages. Public liability insurance covers these costs. 

Some policies also pay out for repairing or replacing damaged property or settling medical fees in the case of injury. Public liability policies can also cover situations in which your company supplies, makes or installs a product that damages property or harms people through sickness or injury.

For example, if you run a catering business and the food you supply for an event gives people food poisoning.

Read more: What’s the difference between public liability and professional indemnity insurance?

Do you need public liability insurance?

It’s not a legal requirement to have public liability insurance unless you run a horse-riding establishment. However, it’s important if your business interacts with customers, clients and the general public, even if only occasionally. 

Shop owners, tradespeople, restaurants and hairdressers typically buy public liability insurance, but that list is far from complete. You can find suitable cover regardless of your business type or size, with public liability insurance for the self-employed or small businesses both available. 

You might also need public liability insurance to belong to certain trade associations, and some clients may insist you have it before doing business with you. You usually need it for local government or council contracts.

Some professions and trades that usually take out public liability insurance include:

• Shops or market stalls

• Trade businesses, including builders, plumbers and electricians

• Restaurants, pubs, B&Bs

• Courier services and removal firms

• Hairdressers

• Vehicle repair garages

• Tree surgeons and gardeners

• House clearers

• Window cleaners or gutter clearance service provider

Who else could benefit from it?

Any firm that crosses paths with the public, customers and service providers, such as couriers, may benefit from public liability insurance.

So, if any of the following ring a bell, public liability could be relevant for you:

• You work from home, where you sometimes meet clients (even if only occasionally)

• You visit customers’ homes for work purposes, such as to provide quotes for jobs

• You take delivery of goods from delivery services at home or your work premises

• You employ staff to do leaflet drops, pick up supplies or drop off purchased goods 

• You organise external events that involve participants or spectators

Other reasons to get public liability insurance

For some small businesses, public liability insurance is not only to protect their company but also to open doors. For example:

• Local government authorities and councils typically won’t work with you without a specified minimum level of cover

• Many large companies, particularly those in the construction industry, may require you to have a minimum level of protection

• Certain trade organisations won’t let you join unless you have public liability insurance 

How much cover do you need?

The amount of public liability insurance you need depends on the risks associated with your work. You can typically choose cover worth £1 million, £2 million, £5 million or £10 million. These sums represent the maximum amount an insurer will pay out if you make a claim. 

If you run a building firm, the risk to the public, passers-by and property is greater than if you own a hair salon. The latter may need £1 million in cover, while the former may need far more due to the nature of their work and the bodies that employ them. 

For example, local authorities and councils invariably require any company working for them to have between £5 million and £10 million in protection. 

A minimum level of cover can also be a joining criterion of various trade bodies. For instance, the Electrical Contractor’s Association stipulates applicants must have at least £2 million in cover.

Choosing the right level of coverage

To help you decide how much cover you require, you should think about the nature of your business and the likelihood of a claim.

It’s important to choose enough cover, but also avoid taking out more cover than you need. That’s because the higher your level of cover, the more your premiums cost.

The following questions can help you determine how much cover to apply for:

• How often does your business come into contact with members of the public?

• What’s the likelihood of your work causing injury or damage to property? 

• How serious is any potential injury or damage likely to be?

• What’s the minimum level of public liability cover specified by a trade association to which you wish to belong?

• What level of public liability insurance are your clients insisting upon?

If you’re still not sure how much cover you need, talk to a broker or your preferred insurer.

How much does public liability insurance cost?

The exact cost of public liability insurance depends on a range of factors. You can expect to pay from around £5 a month, rising to more than 10 times this amount, depending on the following:

• The nature of your work – certain professions are riskier than others, such as construction and some services

• The number of people you employ – the more staff you have, the greater the chance of someone causing an accident

• Your business structure – whether you are a sole trader, in a partnership or a limited company

• Your annual turnover – high turnovers suggest to insurers that you are busy and have lots of clients, which may increase the risk of a claim 

• Your business address and where you work – there are more hazards in busy towns or cities than in small, quiet towns and villages

• Your claims history – if you’ve claimed in the past, insurers consider you a greater risk than someone who’s never claimed

• How much voluntary excess you agree to pay – this is the sum you contribute towards the claim before the insurer steps in

It’s important to shop around and compare quotes from a range of insurers to get the right level of cover at the best price. Doing so will also help you understand the many options business can get covered for.

What happens if I don’t have public liability insurance?

If you don’t have public liability insurance and a member of the public injures themselves and successfully sues you, you or your business would need to pay the resulting legal fees and compensation. 

If you’re a limited company, your business is liable, but if you’re self-employed, you have to cover the costs out of your own pocket. Given these costs could run into hundreds of thousands or even millions of pounds, this could seriously damage your business or personal finances, and even result in bankruptcy. 

You can avoid all of this by having public liability insurance in place. Even if you never need to claim on your policy, you have peace of mind that you’re covered if something does go wrong.

You should also be aware that if you enter into an agreement with a client who requires you to have public liability insurance and you don’t have it, you’re in breach of contract. This could result in the client terminating the contract and claiming damages against you.

What doesn’t public liability insurance cover?

Public liability insurance protects you against most, but not all third-party claims relating to death, injury or loss of property.

Exclusions include claims arising from malicious or reckless acts, such as if a builder tosses a broken brick over their shoulder and hits someone. Likewise, policies don’t cover criminal acts, such as fraud or theft. 

Other potential claims that fall beyond the scope of public liability insurance include: 

• Staff injury or death, or property loss

• Loss of life, injury, or property loss suffered by you or your partners

• Company property loss or damage

• Financial loss caused by poor or negligent professional advice or services