Benefit Consultants Blog

What a totally confusing subject !. There seems to be a whole range of products called employers liability insurance, public liability insurance and a fair few other varieties of liability insurance. There’s even more uncertainty concerning what exactly is optional and what the law demands. The aim of this article is to simplify liability insurance so that we are all able to select a suitable product to protect the business against claims from members of staff, clients or the general public. Let’s start by talking about some of the types of liability insurance.

Employers Liability Insurance

Employers are responsible for the health and safety of their employees while they are at work. Your staff may be harmed whilst working or your current or former members of staff, may develop an illness following their endevours whilst in your employment. They might try to sue you for damages if they believe that you are responsible. The Employers’ Liability (Compulsory Insurance) Act 1969 insists that you have a certain level of liability insurance protection against any such claims.

Employers’ liability insurance will enable you to pay any compensation that is awarded to your staff illness or injuries whether they are caused on or off site. However, any injury or illness as a result of car accidents that occur whilst your employees are working for you could be already covered by your car insurance.

The NHS could also claim hospital treatment costs (including ambulance costs) whenever compensation for personal injury is paid.

Members of staff suffering injury due to an employer’s negligence can seek damages even if the business goes into liquidation or receivership.

By law, employers in the UK must have ELCI (Employers Liability Insurance) and be insured for at least £5 million. Most insurers automatically provide cover of at least £10 million. Employers Liability Insurance must cover all your members of staff in England, Scotland, Wales and Northern Ireland.

If your business is not a limited company, and you are the sole member of staff or you only employ close family members, you need not purchase employers liability insurance. Limited companies with a sole employee, provided that the employee owns at least 50 per cent or more of the issued share capital in the company, are also not required to arrange compulsory ELCI.

Public Liability Insurance

Public Liability Insurance insures against any damages awarded to somebody because of damage to their property or an injury caused by you, your business or your staff. It also covers any related legal fees and expenses together with hospital treatment costs (together with any associated ambulance costs) that the National Health Service may attempt to claim from you.

The cost of public liability insurance vary according to your style of business, turnover of the business and how many members of staff you employ.

Certain professions, for example horse riding establishments, are legally forced to have public liability insurance. You are also likely to discover that some of your potential or actual customers need proof of you holding public liability insurance before they will do business with you.

Product Liability Insurance

When discussing PLI (Product Liability Insurance), the definition of a product is any physical item that is given away or sold.

According to the Consumer Protection Act of 1987, products have to be “fit for purpose”, customers may try to claim from you first, even if you did not actually make it. You’ll be open to compensation claims if:

• your company name is on the item – it was manufactured for your brand
• your business repairs, upgrades or changes it
• you imported it from outside the European Union
• it is not obvious which company made the product
• the manufacturer is no longer in business

If none of the above applies, liability lies with the manufacturer – or the processor where the product involves parts from multiple manufacturers.

Property Owners Liability Insurance

Property owners’ liability insurance is designed to meet any costs and damages given to a member of the public if they suffer an injury as the result of an accident on, or linked to, your premises. This might include costs of treatment in hospital and ambulance charges charged by the National Health Service, if somebody is awarded compensation for personal injury.

Generally, it is a good idea to make sure that property owners’ liability is included within your business policy – you may find it included with  your contents insurance policy.

Professional Indemnity Insurance

If your business involves selling your knowledge or skills, you might wish to think about obtaining professional indemnity insurance.

The product covers your company against compensation claims brought by a client if you have made mistakes or are found to have been negligent in some or all of the services that you provide for them. Professional indemnity insurance also covers you for any legal costs incurred.

Most professionals carry professional indemnity cover. If you are an accountant, lawyer or financial adviser, then you are required by law to carry professional indemnity insurance. Professionals such as consultants, architects, advertising and PR agencies and designers often choose to take out such cover also.

Business Insurance

Many owners of small businesses or self employed tradesmen will discover that there are liability insurance products designed for their particular business. These products are marketed under a number of names such as self employed liability insurance, tradesmans insurance, small business insurance or business insurance. These offerings will normally incorporate a variety of individual sections comprising public and employers liability, combined with appropriate sections from legal expenses, professional indemnity and office insurance. This type of business insurance should offer substantial savings when compared to purchasing the individual components separately.

As a self-employed business owner, it is your legal responsibility towards your employees, customers and the public. You could be held legally liable and risk being sued if an employee or a member of the public suffers an injury as a result of your negligence or breach of duty. If their claim for personal injury compensation is successful, you could also face a claim from the National Health Service for refund of hospital treatment costs (including the cost of providing an ambulance if and when appropriate).

In its simplest form, liability insurance is formulated to pay any legal costs and compensation that could happen if someone is found to be at fault. If you employ anyone it is most likely that you will have to take out employers’ liability compulsory insurance (ELCI).

ELCI forces any employer running a business in the UK to insure their liability to their staff for bodily injury or illness sustained in the course of their employment in the UK. It provides increased peace of mind to firms against penalties which might otherwise result in financial problems, and to staff members that finances will be available to pay compensation even where firms have gone bust.

How are liability insurance premiums calculated ?

The price of an insurance policy – normally called the premium – is normally worked out utilising a “book rating”. It is calculated by beginning with a base rate, which includes the insurer’s expenses and reflects their desire for your profession – if they want your type of business, the premium will be less than if they don’t.

The premium is also calculated on the insurance company’s estimation of the level of risk related to a particular business or industry area.

The policy cost will be adjusted by factors such as any previous claims, the size of the perceived risk and your approach to risk management.

The fewer claims that you have made and the safer your working environment, the lower your premium will be.

Costs are also calculated on the records of other similar professions by lumping good and bad together – a small business with a good record may be damaged by this. Your own safety record and approach to risk management can lessen the damage caused by this.

With employers’ liability, the exposure risk is assessed on the basis of the number of members of staff and the size of the company wages bill. In addition, there are further factors that affect how risk is assessed.

For public and product liability the insurance risk is calculated on the turnover of your company and other items including whether you carry out your business away from your premises.

What public liability insurance covers

Commercial liability insurance covers any awards of damages given to someone following an injury or damage to their belongings or property caused by you or your business. It also covers any expenses, costs and related legal fees together with costs of hospital treatment (including ambulance costs) that the government could demand from you.

Charges depend on your line of business, your turnover and the number of employees you have.

Public liability insurance is a complex product and possible clients must give careful consideration to all of the policy documents to make sure that the product suits their requirements.

Even if you work from home, if customers or members of the public meet you there, you should probably consider purchasing public liability insurance.

Some businesses, eg riding stables, are legally forced to have public liability cover. You are also likely to discover that some of your potential or existing clients need proof of current public liability insurance cover before they will allow you to work for them.

Many owners of small businesses or self employed tradesmen will find that there are a variety of products that are tailored to their business. These policies are found under a number of labels including business insurance, small business insurance or self employed liability insurance. These offerings will include a variety of individual sections including public and employers liability, combined with a combination of office insurance, legal expenses and professional indemnity.