The difference between public liability and indemnity insurance
Professional indemnity insurance and public liability insurance are two distinct types of legal coverage, each serving different purposes. The difference between public liability and indemnity insurance is:
- Professional Indemnity Insurance: Is designed to protect professionals, such as consultants, from claims of negligence or professional misconduct. It covers legal fees and compensation costs if a client alleges financial loss due to your advice or services.
- Public Liability Insurance: is essential for businesses interacting with the public. It covers claims related to accidents or injuries on your premises or due to your business activities, ensuring you're financially protected against third-party claims.
When deciding between these insurance types, consider your profession and business activities. Professional indemnity is crucial for service-based professionals, while public liability is vital for businesses with public interactions. Many professionals may opt for both types to ensure comprehensive coverage.
Ultimately, the choice between professional indemnity and public liability insurance depends on your specific needs and the nature of your business.
Professional indemnity and public liability insurance are often mistakenly believed to be only available to companies. A freelancer, sole trader or someone working professionally as a volunteer can buy those covers.
How does professional indemnity insurance work?
Professional indemnity insurance will protect you from accusations of making a costly mistake, giving wrong advice, being negligent or failing your duty of care.
In other words, the services you offer to solve your client's challenges are the subject of this insurance cover.
However, PI cover will not respond to accidental injuries or property damage if your business or you are deemed at fault. That is what public liability is for.
How does public liability insurance work?
Public liability insurance is designed to respond to claims of causing an injury or property damage.
These claims can come from your customers and clients. But suppliers or passers-by can also try to claim compensation.
Most self-employed individuals and businesses with regular physical contact with those parties need this cover, which provides legal defence and compensation.
Professional indemnity insurance vs public liability
It isn't so much about public liability vs professional indemnity. You may need both, depending on your business activities.
As we explained above, those covers are designed for different legal claims; sometimes, it's best to have both.
Many businesses and self-employed professionals believe that doing their best will protect them from such claims.
Unfortunately, our best sometimes isn't good enough. Public liability and professional indemnity insurance can offer peace of mind that if something doesn't go according to plan, you can turn to someone for help.
Don’t stop reading yet!
Not all claims of causing an injury or property damage fall under public liability insurance.
An injury, property damage or even death can be caused by bad advice.
Let’s take Mike, a martial arts instructor, as an example. He discovered some time ago that public liability insurance doesn’t cover specific scenarios.
One of his students decided to practise a newly learnt technique on his flatmate at home. Unfortunately, by doing so, the student caused a concussion to the flatmate.
The flatmate asked for her medical costs to be paid. In response, the student blamed Mike for not properly explaining the consequence of using the technique in full force.
Luckily for Mike, the flatmate dropped the case, prompting Mike to review his insurance policy and add professional indemnity to his cover.
Points to remember
- If your professional advice could cause an injury or property damage, check that your professional indemnity covers these risks.
- You’re only covered if you have active professional indemnity insurance when a claim is made against you. In other words, if you cancel your professional indemnity insurance, you are no longer covered even if you were insured when delivering work for a client.
- Professional indemnity insurance can cover your past work as well. Make sure you specify the required retroactive date when arranging your cover.
Are public liability and professional indemnity insurance a legal requirement?
Public liability insurance and professional indemnity insurance are not legal requirements in the UK. However, these covers are strongly recommended for businesses and professionals to protect themselves from getting sued by third parties, blaming them for accidents, damages, or work errors. While there are no legal mandates, some industries or regulatory bodies may require specific types of insurance as a condition of membership or operation. It could also be a contract condition.