Is Public Liability Insurance compulsory? Or is it a legal requirement to have Public Liability Insurance for businesses under UK law?
Is Public Liability Insurance compulsory? No, there’s no general rule that all businesses must have Public Liability Insurance. However, cover may be a requirement for certain contracts.
While it is currently not a legal requirement there is a question over whether it should be. The 2019 collapse of Thomas Cook sparked a debate among insurers, business owners and consumers.
What does Thomas Cook have to do with Public Liability being compulsory?
Thomas Cook self-insured most small incidents. This means that they settled claims out of their own pocket. This is not necessarily an unreasonable thing to do. If you have reasonable funds to do this it may make sense for your business. However, what happens if you close? Who do your customers claim against if they’ve suffered losses you’re at fault for?
This is exactly what happened with Thomas Cook. Thomas Cook only had formal Public Liability cover for high-value claims. Post-liquidation, many customers were left unable to receive compensation for losses.
Therein lies the question: should it be a legal requirement for businesses to have broad Public Liability cover?
Should Public Liability be Compulsory?
If your business interacts with the public, you should consider public liability cover. “The Public” covers customers, business associates, and passers-by, but excludes employees.
Public Liability will respond should a member of the public claim for injury or property damage. Third-party public liability insurance will handle most complaints and subsequent pay-outs. Likewise, you may choose to self-insure those risks.
However, what happens if your business ceases trading and does not have a Public Liability policy before closing? Who deals with any Public Liability Claims?
Thomas Cook’s collapse highlighted how self-insurance impacts the consumer. If they’d had public liability on all claims, a third-party insurer would continue to handle claims after its liquidation. As it was left, many consumers lost out on compensation for damages.
Should Public Liability Be Compulsory? Self-Insurance is a Risky Business
Other than the concern that you will cease trading one day, there are more risks to self-insurance. You will not get the level of cover that you would with a third-party insurer with self-insurance.
Self-insurance isn’t always bad for all risks. Often it can be a reasonable response to small losses that would ultimately cost you less than the premium and excess of a formal insurance policy.
However, it does not substitute for Public Liability where costs can run into the thousands.
Should it be the business owner’s choice if they’re the one who faces the losses?
Unfortunately, in Public Liability cases, it is not only the business owner who will lose out.
Public Liability covers your legal liability for a handful of distinct accidents as a result of your business activities:
- Damage to property
- Bodily injury or illness
- Accidental death
These incidents can occur both at your business premises or offsite. For instance, at a client’s home or an event you have been contracted for.
When a customer enters a shop, they do not expect to sustain an injury. However, perhaps another customer spilt a drink and left the floor wet. Maybe there is an issue with a shelving unit that hasn’t been identified and is set to collapse at any moment.
If the shop owner does not have cover or the means to pay, is it fair that the customer doesn’t get the compensation owed? This is the logic behind compulsory Employers Liability and Medical Indemnity cover. The law ensures that employees and patients can access compensation.
What Business Insurance is Compulsory?
In the UK, many medical professions require membership to a governing body. These memberships require valid indemnity cover for treatments, advice and diagnostics. As mentioned above, this is to ensure protection for the patient.
Similarly, Employers’ Liability Insurance is compulsory in the UK for many employers. The Employers’ Liability (Compulsory Insurance) Act 1969 ensures that employees receive fair compensation if they are injured at work.
Businesses not having EL cover when they should can result in heavy fines. So it’s essential to ensure that y+ou have the correct level of Employers’ Liability cover always.
Do I need Public Liability Insurance if I do Regular Risk Assessment?
Carrying out regular risk assessments can decrease your chance of common incidents. However, risk assessments do not substitute for a robust Public Liability insurance policy.
Can Businesses Fold Under Large Claims When They’re Uninsured?
Absolutely, the risk of not having business insurance is that your business will have to put up the cost should a major incident occur. This applies to any assets or incidents such as the loss of equipment.
When opening the doors to the public, there is a certain level of risk that business owners take on in the way of potential injuries and property damage.
For instance, if a member of the public is injured on your business premises, they can sue you for damages. Perhaps on one particular occasion, several people at once are injured. Suppose the roof falls in or the shelves collapse on a hoard of Black Friday sales patrons.
That could be thousands and thousands of pounds that many small businesses don’t have tucked away. While you may think: couldn’t be me, it might be somebody. Shouldn’t members of the public have legal protection when they enter a place of business? or when that business enters their home?
Imagine you are the injured party. You try to sue the business for damages for your rehabilitation costs and loss of earnings. However, you find out that the company doesn’t have insurance, and they cannot deal with the onslaught of liability claims.
The business subsequently liquidates its assets and shuts down, but it doesn’t cover all the claims, and the trail goes cold. Who is liable for your compensation costs now?
Surely there should be some legal protection for people like you in this situation? At present, there is not. Hence the question: should Public Liability Insurance be compulsory?
Key reasons Public Liability Insurance should be compulsory:
- PL ensures members of the public get the compensation they deserve following a loss or injury caused by a business
- Businesses that self-insurance may not always be around when a claim comes through
- Protects businesses from shock costs that lead to instability and job losses
Key Reasons Public Liability Insurance Should Not Be Compulsory:
- The risk to each industry varies. Some businesses are not at risk of high-cost public liability claims.
- Some businesses are happy to self-insure or part self-insure. However, again, we circle back around to what happens if they close?
In conclusion, we must ask ourselves this:
- Do businesses have a responsibility to people who’ve suffered losses through their activities?
- Should those individuals receive fair compensation for those losses?
- Is self-insurance adequate for businesses that may close?