Wondering, “What is liability insurance and why do I need it?” We’ve got the answer right here.
Liability insurance provides protection for businesses, independent professionals or self-employed trades against legal claims brought against them by clients, customers, members of the public, or employees.
(What does liability mean in an insurance policy? The term liability refers to when one party is legally responsible for something.)
Defending and settling such cases can be enormously costly and can even cripple smaller businesses. This type of insurance helps cover the cost of legal fees and other expenses associated with a claim.
Here, we take a look at what liability insurance covers, and the different types of liability insurance coverage — some legally required and others optional.
What does liability insurance cover?
Most liability insurance policies cover the legal fees, settlement costs, and other expenses that may arise during a claims process.
However, like all insurance policies, exactly what is covered will depend on the type of liability insurance and the level of coverage outlined in the policy.
What are the different types of liability insurance?
The four major types of liability insurance are:
- public liability insurance,
- employers’ liability insurance,
- property owners’ liability insurance, and
- professional indemnity insurance.
Each of these targets a slightly different risk and cover need. Let’s take a look in more detail.
1. Public liability insurance
What is public liability insurance?
Public liability insurance is a type of business insurance which covers legal costs and compensation payments for claims made by members of the public in relation to a business and a business premises. This covers claims against a business for an injury, illness or damage to their property.
Who needs public liability insurance?
Although not a legal requirement, public liability insurance (also known as general liability insurance) is highly advised if your business has any contact with members of the public, if you visit customers, if customers visit you, or if you work in public. Most businesses choose to have public liability insurance to safeguard themselves in the event of accidents and to avoid the potentially high legal costs associated with claims made against them.
As all businesses are different, there are different levels of coverage offered by public liability insurance policies. If your business has minimal contact with members of the public, you might choose a low level of protection. If your business is constantly interacting with members of the public, for example, personal care services businesses, restaurants and construction companies, a more comprehensive policy is a better option.
Often clients or businesses will only engage the services of a business which has public liability insurance. This is particularly relevant when working with governments or councils.
What does public liability insurance cover?
What your public liability insurance covers will depend on the level of coverage selected. In general, it provides cover for the costs of defending and settling claims made by members of the public against a business for incidents that occur in connection with your business practices.
What is an example of a liability insurance claim?
Some examples of claims on incidents that most public liability insurance policies cover are:
- Food poisoning — a member of the public gets food poisoning from food that your business has prepared
- Slips and trips — a member of the public slips or trips and falls, injuring themselves, when at your workplace or because of your business equipment
- Damage to belongings — accidents at your workplace which have damaged the belongings of a member of the public
- Damage to property — accidents by your business which cause damage to someone else’s property, such as scratching a floor or cutting through an electrical wire
Public liability insurance should help you cover compensation payments for things like medical treatment, repairs and financial losses, up to the covered amount detailed in your policy.
2. Employers’ liability insurance
What is employers’ liability insurance?
Employers’ liability (EL) insurance protects businesses against legal and compensation costs from claims by employees. It covers the cost of compensation to an employee who is injured or becomes ill through working for you. Even an employee slipping on a wet floor could lead to a claim.
Who needs employers’ liability insurance?
Employers’ liability insurance is a legal requirement if you have even one employee. You can be fined for every day you, as an employer, are not properly insured. Your employers’ liability insurance policy, from an authorised provider, needs to cover you for a minimum of £5 million. This amount is the legal minimum, and larger businesses may require more depending on the number of employees and the nature of the work carried out. You can discuss these considerations with your insurance provider when taking out your employers’ liability insurance policy.
The nature of the business and the risk involved in the work your employees do will affect the level of cover needed. Higher-risk professions, such as electricians, engineers and rope access work, will require more cover.
What does employers’ liability insurance cover?
EL insurance covers the cost of defending or settling claims against an employer by an employee. The claim could be related to an injury or disease related to the work they do, or for employer negligence. This type of insurance will help cover the compensation costs and can include medical costs, legal costs, loss of income and any other damages.
3. Property owners’ liability insurance
What is property owners’ liability insurance?
Property owners’ liability insurance protects you in the event that a person is injured or their personal belongings are damaged on (or linked to) your premises. If someone incurs bodily injury in an accident on or connected to your property, this type of insurance can help you cover the costs of any damages awarded to a member of the public.
Who needs property owners’ liability insurance?
As the name suggests, property owners’ liability insurance is designed to protect the owner of a piece of land or a building. Property owners are legally obligated to ensure their property is well maintained and does not pose any unnecessary risks to anyone using the property. This included tenants, visitors to the property or members of the public outside the building.
What does property owners’ liability insurance cover?
What is covered differs between insurers, but generally, property owners’ liability insurance will cover the costs involved in claims, such as legal fees to defend a claim and any resultant damages awarded to the member of the public who suffered the injury. This could include hospital treatment and ambulance costs.
If, for example, a postman trips on a loose paving stone or an uneven stair, or a contractor slips and injures themselves on a wet surface, you may be required to pay compensation.
Property owners’ liability insurance often requires you to comply with legal requirements, such as electrical appliances and gas safety checks.
4. Professional indemnity insurance
What is professional indemnity insurance?
Professional indemnity insurance is an insurance policy for business owners, freelancers and self-employed individuals which provides compensation for claims from clients for inadequate or negligent services.
Who needs professional indemnity insurance?
Professional indemnity insurance, also known as professional liability insurance, is designed for service-based businesses. It’s essential if you offer your knowledge, skills and advice as part of your service. The boards or regulators of certain professions might require you to have professional indemnity insurance. Some of these are accountants, architects, financial advisors, solicitors and some healthcare professionals.
What does professional indemnity insurance cover?
What exactly your professional indemnity insurance will cover depends on the service provider, and can often be tailored to suit your business requirements. Clients might claim if they want compensation for loss or damage resulting from any of the following:
- Negligent services or advice
- Incorrect information or training
- Poor business advice
- A breach of professional duty
- Errors or omissions which caused them financial loss
- Civil liabilities
Professional indemnity insurance can help in situations where your business faces legal action. It covers the legal costs of defending and settling covered claims. Some examples could be an employee leaving documents containing sensitive information on a train, or an employee providing professional advice which is damaging. Some policies also cover claims of defamation and intellectual property.
All businesses run the risk of being sued by someone for financial or health damages, whether it’s by a client, an employee or a member of the public.
No matter if you’re a business owner, an independent professional, or a self-employed tradesperson, liability insurance covers any legal costs and settlements if you find yourself on the end of a claim. Interested in liability insurance for your business? Our team of expert advisors can help you find exactly the right protection to cover every area of your liability. Get started here.