What you need to know about liability insurance

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With an increasingly litigious society, it's never been more important for businesses to get covered - no matter how big or small
"We’re all operating in an atmosphere of litigation" 'Carol', freelance educational consultant
  • | by Maxine Frances

As a business owner, no matter how successful you are, at some point in your career you’re likely to be faced with a dissatisfied customer, or in the worst case, an accident involving your work.

With easy access to no-win no-fee legal services encouraging compensation claims, whether you’re a wedding planner or CEO of an investment bank, liability insurance to protect you when things go wrong is essential.

There are two types of liability insurance - or, advice liability insurance, as its sometimes known: public liability and employers' liability.

If you run a company, you’ll probably already be familiar with employers' liability, a legal requirement for all employers, which protects you against being sued by an employee if they have an accident at work.

Food for thought

As the name suggests, public liability insurance protects you from claims against your business by members of the public, for example, if you damage a client’s property, or a customer has an accident on your premises. This is particularly important if your business serves food or drink, and especially alcohol.

One claim for a restaurant, processed by insurer SimplyBusiness, arose when a customer in a large party fell off her chair and broke a chair leg. The party appeared to have been drinking alcohol when they had arrived and continued drinking until late into the evening, with no mention made of any injury to the customer until afterwards.

Public liability insurance may also contain product liability, which will cover any products you either manufactuer or sell.

Advice Squad

If you run a business or consultancy providing any kind of advice or service for a fee, liability insurance can protect you from legal action if a client claims they’ve suffered loss of earnings or reputation damage due to your advice.

Many professional suppliers and contractors even require you to have liability insurance before you start working for them. 'Carol' a former headteacher, was made to take out liability insurance when she became an educational consultant and was advising schools on how to improve their results.

“I hadn’t really heard much about it before then,” she admits. “When I got the schedule I could see why I would need it. It could’ve been if a school had got a bad OFSTED inspection report they’d attribute it to advice I’d given them," she says. "Also libel, slander, defamation: you can do that in good faith. We’re all operating in an atmosphere of litigation. I’m much more aware of it now than I was prior to doing that kind of work.”

It’s not only top-level educational consultants who are at risk of legal action. Private tutors can find themselves held responsible for a student under-performing, for example, and unlike classroom teachers, won’t have the protection of a large teaching union.

'John' a private GCSE and A Level tutor, doesn’t have liability insurance and admits he worries about what could happen if he was caught short: “It comes down to balancing the cost of insurance with the cost to me if someone wasn’t happy with their exam grade. There’s no way I could afford the legal fees.”

NUMBER CRUNCHING

Most liability cover is based on an annual fee. How much you pay will depend on the size and nature of your business and how many employees you have. Typically, a freelance professional, for example, a consultant or physiotherapist, will take out cover to the value of £2 million, with some claims running up to £5 million.

A good liability insurer should pay towards your legal costs for defending any claim made against you, insure you for compensation claims made against you, and offer you both public and employer’s liability insurance as a package, if you need both.

William Hulse, managing director of LFC Graybrook, which specialises in insurance for freelance health and education professionals, explains: “There are two elements to liability cover. One is the professional element, the other is public liability which is where they can cause an accident that gives rise to a personal injury or damage to property. The two elements are combined into what we call a civil liability insurance programme.”

He continues:“If people go for just public liability insurance then that may be insufficient for their needs, so we combine the two."

As with all types of insurance, your premium amount will go up if the number of claims over a particular period increases, for example, due to developments in your industry. Insurers will offer different packages depending on whether you’re a sole trader, partnership or limited company. Their definitions of each can differ so if you’re in any doubt which you fall under you should consult a solicitor to decide whether an individual or corporate liability package is best for you.

FEATURE PACKED?

A key feature of liability insurance which makes it different from other types is that some insurers will cover you for incidents before and after the start and end date of your policy. This is important if you’re working in an industry where results tend to be measured in the long rather than the short-term.

'Caroline', who took out LFC Graybrook’s insurance, stopped her policy recently after she retired but wonders whether she should have kept it active: “Since I’ve given it up I’ve thought, supposing there’s something further along the line, say in three years. You can have a run-off cover for up to 5 years rather than at the time of the claim.”

As with any insurance, you should check exclusions carefully. Some people are confused by terms which state that they are not covered if they have a ‘controlling interest’ in their company.  This simply prevents false claims, so that you can’t use another company you own to claim against yourself.

Some names in this article have been changed for anonymity.