Public Liability vs. Professional Indemnity Insurance

Public Liability vs. Professional Indemnity Insurance

When you are insuring your business, the different types of coverage and policies can be confusing. As such, it is essential to take the time to understand some of the key fundamental options, together with the potential exposures which they protect.

One of the most frequent questions we are asked is the difference between Public Liability Insurance and Professional Indemnity and which is the most important.

What is Public Liability?

In simple terms, Public Liability Insurance provides protection for your legal liability against claims for injury or damage as a result of the actions of you (or one of your employees) in the course of carrying out your work.  

For example, a client trips over your laptop bag or a cable and breaks their ankle.

What is Professional Indemnity?

PII Insurance provides cover for legal awards, costs and expenses if you (or one of your employees) is alleged, in the course of your professional duty, to have provided either inadequate advice or services to a client.  

The policy will pay costs in terms of defending a claim, together with any compensation due to your client and/or rectification costs to remedy the error.

Do I Need Both Covers?

Whether a business needs both PI Insurance and Liability Insurance really depends on the type of company and the nature of the activities.  

A business which has no contact with clients or members of the public may feel that they do not need Liability Insurance (for example, a home-based web designer).

However, if they are providing professional advice or expertise (as in the web design example), they do owe a duty of care as an expert in their field and could be held liable if things go wrong.

As such, they would be wise to obtain Indemnity cover.

On many occasions, a service-led professional, such as an Accountant, Recruitment Consultant or Estate Agent, will be providing advice and coming into contact with clients or the public, in these circumstances both covers are a key requirement.

Is It Compulsory?

Neither Public Liability or Indemnity Insurance is a legal requirement.

Still, you may find that either, or both, could be a contractual requirement when tendering for some contracts or working for a local authority.  

For example, if you are contracting to a larger firm, they will often ask all sub-contractors to buy the same level of liability coverage as that provided by their own policy.

Which Is The Most Expensive?

The cost of either cover will generally be driven by the different level of exposure presented by the work being carried out. Let’s look at a couple of examples:

  • A kitchen design and installation business will probably require both PI Insurance and Liability cover.  Mismeasuring the room or a faulty design would be a PI claim, whereas drilling through a pipe while putting up a cabinet is a liability claim.  However, the greater propensity to a claim is the kitchen fitting, as this forms the bulk of the work and a higher premium is likely to apply.
  • A Chartered Surveyor is providing professional advice on building valuation or construction issues (PI risk) as well as visiting sites.  As the work is non-manual, the liability exposure is small, yes, someone could trip over the measuring tape. Still, in reality, the much more likely area of claim is via challenges to advice or valuations under a Professional Indemnity Insurance policy.

I heard You Need To Buy Run-Off Cover?

Professional Indemnity cover is written on what is known as a “Claims Made” basis.

What this effectively means is that you need the policy to be in force, not only when you carry out the work (or provide advice), but also when a claim is made against you.  

Depending on the type of business, some PI claims can take several years to raise their head, as such, it is advisable to purchase run-off cover for some time after the work has finished or you have retired.  

Premiums for run-off cover will reflect the diminishing exposure as no new work is being carried out, but may often be required for over seven years.

Public Liability, on the other hand, is written on a “Claims Occurring” basis, in this circumstance, you only need cover in place while the work is being carried out and indemnity for any subsequent reported loss will fall on the insurer at the time of the incident.

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