What's the difference between Public Liability insurance vs Professional Indemnity insurance?

Public liability insurance (PL) and Professional indemnity insurance (PI) are business insurance types that cover compensation claims and are vital to self-employed business owners. It is common for people to misunderstand how each of these insurance policies can protect them against risk and against compensation claims from customers.

In short: public liability insurance covers claims made by members of the public for injury or damage to their property by your business, whereas professional indemnity insurance cover claims from clients of alleged professional negligence or mistakes in your work which have cost the client money.

Read on to find out more detail of how each of these two insurance policies help and why it is important for many self-employed professionals to carry both.

How does public liability insurance (PL) work?

Public liability insurance provides cover for claims against your business of injury or property damage by a member of the public. To put this into context, for most businesses that mean their customers, postal and delivery workers, and suppliers, or even passers-by.

The policy will cover the cost of your legal defence, compensation payments, medical costs and, in some cases, loss of income as a result of the claim.

Large organisations carry public liability insurance as good practice because they typically deal with the general public on a daily basis, however, public liability insurance is not a legal requirement.

As a result, many freelancers either might not be aware of the need to carry this type of insurance or given the option they have chosen not to purchase this type of cover, even if doing so potentially leaves them exposed to claims.

Who should carry PL insurance?

Freelancers who meet clients in their own homes, or who meet clients at the client’s premises should consider purchasing PL insurance in case an accident happens. You may think you are careful and conscientious, but accidents typically happen due to something that is out of our control or if we lose concentration for a split second.

Instances of accidental damage being caused to client property by freelancers are not uncommon and without PL insurance they can be costly.

For contractors the decision to purchase PL insurance can easier as many contracts stipulate both PL insurance and PI insurance as mandatory requirements in the contractual terms and conditions.

PL insurance claims can be wide ranging, many common examples can demonstrate how PL insurance can protect small businesses and the self-employed, and include:

• Slips – A customer visits your workplace and slips on liquid spillage, breaking their wrist as they try and cushion their fall. As a result, they claim against you for the financial loss they suffer due to not being able to work during their recovery.
• Trips – You’re working as a contractor at a client’s premises. A visitor trips over a loose power cable connected to your laptop and injures themselves when they fall. They require physiotherapy as a result of their injuries and make a compensation claim against you.
• Falls – A client falls down some stairs on your business premises and badly hurt muscles and tendons in their leg. They claim against you for the time they are off work and for the rehabilitation costs.

How does professional indemnity insurance (PI) insurance work?

Professional indemnity insurance will cover claims against you made by a client for professional negligence or errors made in work you have completed for the client.

Claims can be made due to professional errors, defamation or libel, sub-standard work, or even the perception that you gave your client poor business advice.

PI insurance covers legal costs incurred in defending against a claim, compensation awards to the claimant, and even the additional costs incurred to rectify an issue as well as loss of income as a result of the claim.

PI claims examples include: a graphic designer creating and printing an advertisement for a client containing incorrect contact details, resulting in the client missing out on sales enquiries. Or a recruitment agency accidentally forwarding on confidential client or candidate information. Or a self-employed business consultant imparting advice that causes their client to suffer a financial loss.

Professional indemnity insurance typically covers the following:

• Professional negligence – Making a mistake in a piece of client work, or giving them poor advice, which causes a financial loss.
• Unintentional breach of confidentiality – Sharing sensitive data without permission, such as client information or, if you’re a recruiter, information about candidates without permission.
• Unintentional breach of copyright – Using a ‘rights managed’ image on your website without having purchased usage of the image, or without the image owner’s permission.
• Defamation or libel – Making false accusations about a competitor or client that causes damage to their reputation.
• Loss of data or documents for which you are responsible – PI covers money spent by you in replacing or restoring documents that have been destroyed, damaged, or declared lost even after a search. For example, the documents could’ve been accidentally deleted or shredded.
• Loss of money or goods which you are responsible for looking after – You could own your own storage space which you rent out to customers. If there is a fire, your customers’ property could be destroyed.

Which self-employed professionals could benefit from carrying both PI insurance and PL insurance?

Neither PI insurance nor PL insurance are legal requirements, but they are typically required to win contracts.

However, not all self-employed professionals need to carry both policies at the same time. The following list (which are not exhaustive) highlight examples of self-employed professionals who need both polices, and those who may only need to carry public liability insurance.

Recommended to carry PI and PL insurance:

If you offer professional services, advice, or designs, to your clients, then you will typically be advised to carry professional indemnity insurance as these activities can potentially expose you to claims of negligence.

If you meet customers or suppliers at your workplace or theirs, or of you own physical business premises, then you will be advised to carry public liability insurance. This is because an accident that someone believes you have caused could result in a compensation claim against you.

Some examples of professionals who often require both policies includes:

• Freelance IT contractors – Why?  Because of the complexities of IT work, such as coding, delays to time-bound projects can occur. Delays can add to costs to projects, as can IT development work that doesn’t quite do what it’s supposed to do. For example, it could be a coding project for a financial institution that has a flaw that renders the system insecure. Or a financial calculator that contains a coding error, resulting in incorrect financial actions. These are hypothetical scenarios when an IT contractor might need to call on PI insurance.

Some IT professionals are contracted to work on client’s premises with the existing IT team. If the contractor leaves a laptop cable exposed and creates a trip hazard, then they would need PL insurance in the event of an accident.

• Freelance business consultants – Why?  Consultants impart business advice which can result in growth but can also cost a client money in fees and other potential losses if the advice is flawed, which can result in negligence claims for compensation.

They often visit client premises, which increases their risk of accidentally damaging a client’s property.

• Freelance graphic designers and web designers – Why?  Designers impart advice and deliver designs to their clients. Design work, of any kind, is subjective and often open to opinions and peoples’ differing tastes. This can result in what’s called “design by committee”, which is when too many opinions result in design work that does not fit the brief and is rendered unfit for purpose. While this might not be the designer’s fault, if the work is unsuccessful, then the designer could find themselves on the end of a negligence claim from the client.

Website design can also suffer from delays due to opinions and other issues such as compliance, legal and regulatory requirements, and IT technicalities. If a website launch is delayed as a result, then it has been known for clients to look to recoup any monies lost from the web designer.

If a designer meets clients on their premises or at the client’s offices, then they would also need PL insurance in-case of an accident.

• Freelance bookkeepers, self-employed accountants and financial advisers – Why?  Any self-employed finance professional will need professional indemnity insurance because their advice could cost a client money if the guidance they recommend is flawed. Similar to business consultants, financial advisers visit client premise, which increases their risk of accidentally damaging a client’s property. If they entertain clients at their own offices, then they will need PL insurance in-case a client has an accident on their premises.

Advisable to carry PL insurance:

If you meet customers or suppliers on your premises or theirs, then it is advisable to carry PL insurance. This is because an accident that someone believes you have caused could result in a compensation claim against you.

Examples of self-employed people who might only need to carry PL insurance includes:

• Self-employed shopkeeper, such as a newsagent or grocer – Why?  Shop owners typically deal with customers and suppliers on a daily basis and would need PL insurance if someone had an accident on their premises. However, because they don’t typically impart advice so PI insurance may not be relevant to them and their services.
• Tradespeople – Why?  Self-employed trades professionals such as plumbers, electricians, builders, plasters and decorators, to name but a few, work on customer premises and are therefore at risk of damaging the customer’s property. They could also inadvertently create a health hazard to the customer and to passers-by. Hence why tradespeople benefit from carrying PL insurance. Tradespeople wouldn’t typically provide advice or designs to their customers (unless for example they are architects or interior designers), so don’t usually require PI insurance.

Don’t take our word for it, please seek professional advice about which insurance you need to carry, as different industries have different rules and regulations.

Sources:

https://www.markeluk.com/articles/professional-indemnity-insurance-vs-public-liability-insurance-the-differences-explained