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Since there's no overarching requirement for businesses to hold public liability (PL) insurance some occupations aren't clear on whether this type of protection is mandatory or simply advisable. The answer is not always and yes, probably, depending on your business type, the contracts you enter into and the licensing stipulations for your sector. Find out what the requirements are, what's advisable and how to ensure you're compliant.
First, what does public liability insurance cover?
Public liability insurance covers you for the financial loss you incur in legal costs and any amount payable in compensation when you are defending a claim of negligence made against you or your staff. The claim may be for injury or damage to property.
This cover can save you and your business thousands of dollars in legal fees and may represent the difference between the success or failure of your business.
When is it compulsory for a business to have public liability cover?
There are a number of conditions under which PL is a requirement for your business:
- it's a prerequisite for your contractor/building licence
- your employment contract stipulates it
- it's a condition of your business premises lease
- if you're employing subcontractors
- as part of an insurance package.
When public liability cover is a condition of licensing
While this might vary according to the state or territory where you work, there are some industries where licensing is contingent on holding PL cover, and operating without it would be illegal. This applies to plumbers and electricians.
In Queensland, electricians must also have an option for consumer protection in their PL cover, and in Victoria, plumbers need a warranty included in the policy. Without these inclusions applications for licences will be refused.
To ascertain if public liability insurance is mandatory for your specific industry and state, check with your local state licensing authority.
Holding public liability cover may be a condition of contractual agreements
Case study 1: hired property damaged by faulty electrical equipment
Property hired for a film production was accidentally damaged by an electrical surge from temporary generators used on the project. In spite of the damage being due to faulty equipment, under contract the film company was liable for the cost and could be considered to have been negligent in regard to the reliability of the generators.
In this instance, the company's public liability insurance covered the cost of the damaged hired property.
Employment contracts in the construction industry may require every contractor and subcontractor to have current PL cover, and even stipulate the minimum indemnity sum, starting from $5 million which is the baseline for most Australian insurers, and extending to $10 or even $20 million for works that involve exposure to the general public, or even more for projects with large potential liabilities. Contractors may be required to supply proof of currency for their insurance cover.
Having PL cover is also a common requirement in leases for business premises, including storefronts and workshops, and proof of this needs to be provided before the lease is signed. For the cover to apply you need to state the address in the policy.
Why you need subcontractors to hold public liability cover
Case study 2: subcontractor toppled crane on playground construction site
A company employed to install shade sails for a local council playground under construction was left liable for expenses after the subcontracted crane toppled over as a result of the ground giving way under one of the outrigger pads. This was due to the stabilisers not being installed correctly.
Unfortunately, the hiring company had not stipulated that the crane subcontractor held the appropriate level of liability insurance.
This example demonstrates why it may be worth considering making PL insurance a condition of the contract for the work your subcontractors are to carry out. In fact, your PL insurance might stipulate that subcontractors that you employ hold the same level of cover as you do. This can help avoid being found legally liable for your subcontractor's loss.
Some considerations around obtaining public liability cover
Some insurers may only offer PL cover as part of a business insurance package or provide other types of business cover contingent on holding PL cover as well.
In Australia insurers usually provide PL from a minimum indemnity baseline of $5 million which reflects the amount required by many occupational licences, while contractors employing your services may require more, depending on the size of the project.
You're not required to hold separate PL cover for different jobs, the indemnity limit applies to any employment you undertake.
As a sole trader do you need public liability insurance?
Even if having PL cover isn't a mandatory requirement for your occupation or required for contracts, it provides valuable business protection against what could be very costly exposures if your business activities cause property damage or injury.
An insurance broker who understands your industry's risks can help you to decide the level of insurance cover you need and what should be covered under the policy, either in a package or as stand-alone cover, and your options for choosing an excess.
