What is public and product liability insurance?

All companies have a duty of care to act sensibly in their operations, but they may occasionally fail for all kinds of reasons. Simply by spilling a cup of tea on a client’s laptop or bumping into a passer-by and causing injury, they can face a claim for damages.

Liability insurance is designed to cover these cases. In this guide, we’re going to look at two extremely important forms of coverage for startups and SMEs: public liability and product liability. The pair share many common features but it’s important to note the differences between them.

Public liability policies offer protection against claims arising from a company’s day-to-day activities. They are generally recommended for all businesses, although they are particularly valuable for sectors such as construction and maintenance. Product liability insurance, as the name suggests, protects against claims arising against the products that a company manufactures or supplies.

It’s worth noting, right at the outset, that public and product liability usually come as a package (we’ll discuss the pricing in more detail later on). In this guide, however, we’ll look at each of the two strains in detail, paying particular attention to their respective features, benefits and potential costs.

What is public liability insurance?

Public liability insurance policies are designed to protect companies against claims for injury or damage to property from clients and third parties, such as passers-by. These claims generally centre on the allegation of negligence against the policy-holder in its day-to-day operations.

Public liability policies will typically cover any compensation for injuries, property repairs and other damages. If the case goes to court, the policy should also cover the legal costs.

Now we’ll look at some typical case studies which demonstrate the value of public liability insurance.

Damage to property

This is among the most common types of claim and is a particular priority for companies in the construction industry. Builders and tradesmen can occasionally cause damage to client’s homes and offices, but public liability insurance will cover the cost.

Example: A kitchen fitter installs a new unit, but the plumbing fails and the drain below the sink bursts, flooding the property. This would likely lead to a claim for damages and, potentially, to legal proceedings. If the flooding affected a neighbouring property, the owners of that property would also be able to claim.

Injuries to customers

This is particularly relevant to industries such as events, hospitality and health and fitness, which have a large amount of footfall. If a customer slips, falls or hurts themselves, public liability insurance can protect the company which is running the venue.

Example: A caterer fails to maintain their work area and the floor becomes slippery. Eventually, a customer trips and injures themselves. A claim for medical bills and lost earnings (if the customer is self-employed) is likely to follow, but public liability coverage will protect the caterer.

Injuries to passers-by

Any company that operates equipment, machinery or vehicles comes into contact with many different people in their day-to-day life, and can occasionally cause injuries through collisions or misplaced equipment.

Example: A building firm fails to secure their ladder and it falls down into the street, hitting a pedestrian. Again, this would likely result in an expensive claim to cover medical bills and time off work, and potentially legal action.

Injury to visitors and during visits

As improbable as it may sound, companies may occasionally cause injury simply by visiting the office of another party, or during a meeting in a ‘neutral’ location.

Example: A software consultant visits a client to discuss their ongoing project. During the meeting the consultant spills their tea on the client’s hand and causes a minor burn. In some cases, this may result in a claim.

What is product liability insurance?

Product liability insurance concerns the products a company offers, specifically the way those products impact both clients and third parties. Policies will cover any damage that the product causes, as well as injuries sustained both directly or indirectly.

Some typical case studies of product liability insurance include:

Illness or injury to customers

This is relevant to a range of companies including manufacturers of food and beverages, home appliances, consumer gadgets and exercise equipment.

Example: A customer’s home gym breaks while they are using it, and the customer is injured by falling equipment. In this instance, the customer is likely to mount a considerable claim for medical bills and any loss of earnings while they are recuperating. Product liability coverage will protect the manufacturer.

Illness or injury to third parties

Occasionally, a product defect can have consequences beyond its immediate owner, and impact third parties. In this case, they will also be likely to claim.

Example: A piece of double-glazing falls out due to an error during the manufacturing process, and injures someone in the street. In this case, the passer-by can claim for any medical bills and lost earnings.

How much do public and product liability insurance cost?

Most SMEs buy public and product liability insurance together. Indeed, it is standard practice across the industry to bundle them as a package. Janthana Kaenprakhamroy, CEO of InsurTech firm Tapoly, says that “most insurers would usually have the two combined, especially if you are dealing with professionals, although with tradesmen they may occasionally be separate products.”

Research from Axa suggests the average public/product liability insurance premium costs £119.37 per year. However, for startups and small businesses, it can be far cheaper than that. Many SMEs run relatively small-scale operations and thus their risk profile is lower than that of bigger, more established companies.

Several of the major insurance companies advertise a minimum, ‘entry-level’ cost for their liability insurance, and some even cost less than £50. Here are some examples:

However there are a range of factors that will add further costs to the final quote. One of the main ones is the number of people you employ: many insurers will rate a startup or SME on headcount, charging a flat premium per person.

Other factors include:

• The age of your business
• Your profit and turnover figures (if applicable)
• The type of working environment
• Whether you have a secondary profession
• The amount of coverage you’re looking for (the more coverage you want, the more expensive the policy will be).

In addition, each industry has its own specific considerations. We’ve included some examples below.

Dean Brereton, a consultant with Swinton Insurance, says: “Your cost for your manual trades – builder, plaster, painter and decorator, electrician – would probably be between £80 and £90 a year for a coverage level of £1 million. Then your non-manual ones – accountant, IT consultant, hairdresser – may be more like £65 and £75 per year.

“There isn’t much of an incremental increase from there. Companies prefer you to take out higher levels of cover, so if you jump from £1 to £2 million, the price doesn’t double – it may go up by £8 to £10. That way companies can set their reserves higher, so it benefits all parties.”

What do public and product liability insurance NOT cover

First of all, it’s important to remember that deliberate acts are not covered by either public or product liability packages. Liability insurance is designed to cover damage or injury that has occurred through negligence – that is, through errors or oversights rather than intentional attempts to cause harm. It’s unlikely that many SMEs will set out to injure a person or damage their property on purpose, but you should bear this in mind.

It’s also worth noting that there are several potential exceptions that may render your policy invalid. These can include unprecedented and unforeseeable situations, such as natural disasters, nuclear spills or force majeure events, and situations that require other forms of insurance. These include:

• The property you work on. This may no longer qualify as ‘third-party’ property and may instead require material damage cover.
• Any error in advice, omission or treatment. These are considered “professional risks” which means they are subject to a separate Professional Indemnity insurance policy.
• Pollution. This requires a separate, specialist environmental insurance policy.
• Injury to employees. These are subject to a separate employer’s liability insurance policy.
• Cost of rectifying faulty workmanship or replacing or recalling defective products or materials.
• Failure or partial failure of computer programs and loss of data.
• Cost of repairing, altering, replacing, removing or recalling any products supplied.
• Libel, slander, or infringement of plans, copyright, patent, trade name, trademark, or registered design.
• Punitive, exemplary or aggravated damages

Finally, it is worth noting that some product liability policies don’t cover products exported to certain countries, notably the US.

What are public and product liability suitable for?

Unlike employer’s liability cover, there is no formal obligation to buy public or product liability insurance. However every business that has clients should cover themselves, at least for public liability – even those sole traders who barely leave their house.

Richard Packman, director of insurance brokerage Cox Mahon, says “every firm needs public liability cover. Any office-based service company will have some form of exposure. Even a company like an accountancy firm or an estate agency may accidentally cause some form of damage when out on visits.”

Product liability insurance, by definition, is more restricted. Unless you manufacture or supply a product, you probably won’t need it. However if you provide any kind of product, from toys to chemicals, office supplies to sporting goods, you’re going to need to cover yourself.