What Does Public Liability Insurance Cover?

Public liability insurance protects businesses from financial losses due to third-party claims. These claims typically arise from injuries or property damage caused by a business’s operations or on its premises. It covers legal costs and compensation payments resulting from such incidents.

Core Coverage Areas

Public liability insurance broadly covers claims related to bodily injury and property damage experienced by third parties. Third parties include customers, visitors, delivery personnel, or any member of the public interacting with the business. This protection extends to incidents occurring on the business premises or as a direct result of business activities conducted elsewhere.

Bodily Injury Coverage

Bodily injury coverage addresses physical harm, sickness, disease, or death to individuals not employed by the business. For example, if a customer slips on a wet floor and breaks a bone, or a visitor is injured by falling equipment, public liability insurance responds. This coverage helps with medical expenses, rehabilitation costs, and lost income for the injured party. It also covers legal defense costs if the business is sued, regardless of fault.

Property Damage Coverage

Property damage coverage applies when the business’s operations cause harm to someone else’s property. An instance might involve a contractor accidentally damaging a client’s fence, or a plumbing business causing water damage to a client’s home. This aspect of the policy helps pay for repair or replacement costs for the damaged property.

Typical Exclusions

While public liability insurance offers broad protection, certain incidents are not covered. Understanding these exclusions helps businesses identify where other policies are needed. For example, injuries to employees are excluded; these are addressed by Workers’ Compensation insurance, which is a separate and often mandatory policy for businesses with employees.

Professional negligence or errors and omissions are not covered. If a business provides advice or services that lead to financial loss for a client due to a mistake or oversight, these claims fall under Professional Indemnity (or Errors and Omissions) insurance. Additionally, damage to the business’s own property is excluded; public liability covers third-party claims, while Commercial Property insurance covers a business’s own assets.

Claims from intentional acts, like deliberately causing harm or damage, are excluded. Public liability insurance is designed for accidents, not willful misconduct. Liabilities stemming from product defects are often covered by a separate Product Liability insurance policy, especially if the product causes injury or damage after it leaves the business’s control. Other common exclusions include punitive damages, contractual liabilities beyond common law, and environmental damages like pollution.

Understanding Policy Limits

Public liability policies include financial limits defining the maximum an insurer will pay for covered claims. These are expressed as a “per occurrence limit” and an “aggregate limit.” The per occurrence limit specifies the highest amount the policy pays for any single incident. For example, if a policy has a $1 million per occurrence limit, the insurer will pay up to $1 million for all damages and legal costs from one event.

The aggregate limit represents the total maximum the insurer will pay for all covered claims within a policy period, usually one year. If a business has multiple claims during a policy year, the aggregate limit caps payouts, even if individual claims fall within the per occurrence limit. For instance, a policy might have a $1 million per occurrence limit and a $2 million aggregate limit, meaning the insurer pays no more than $1 million for one incident and no more than $2 million across all incidents within the year.

Policyholders also select a deductible, the amount the business pays out-of-pocket before coverage applies. A higher deductible typically results in lower premium costs, as the policyholder assumes more initial risk. Conversely, a lower deductible generally means higher premiums. These limits and deductibles are important in determining a business’s financial protection.

Making a Claim

When an incident occurs that may lead to a claim, prompt action is important to ensure a smooth process. Immediately notify the insurance provider about the incident, as policies often have specific timeframes for reporting claims. Providing timely notification allows the insurer to begin investigation and offer guidance.

Thorough documentation of the incident is important. This includes gathering evidence like photographs of the scene, visible injuries, or damaged property. Collecting witness statements and obtaining medical reports or repair estimates are important to substantiate the claim. Maintaining detailed records of all communications and expenses related to the incident will support the claim process.

Cooperate fully with the insurer’s investigation, providing any requested information or documentation. Businesses should avoid admitting fault or promising compensation directly to the third party, as this could complicate the claim. The insurer typically manages legal aspects, including providing representation if the claim proceeds to litigation.