Business Insurance Explained

What a thoroughly confusing subject !. We have a very wide range of products called public liability insurance, employers liability insurance and quite a few other "flavours" of liability insurance. There is even more uncertainty concerning what is voluntary and what the law demands. This article is intended to simplify liability insurance in order that we can all purchase a product to fit our needs and safeguard the company against litigation from clients, members of staff or the general public. We'll start by describing the more common variations of liability insurance.

Employers Liability Insurance

An employer is responsible for the health and safety of their members of staff while they are at work. Your employees might be injured at work or they, or your former members of staff, may become ill following their work while working for you. They might try to claim compensation from you if they believe you are at fault. The Employers’ Liability (Compulsory Insurance) Act 1969 dictates that you have at least a minimum level of liability insurance cover against any such claims.

Employers’ liability insurance lets you pay any compensation that is awarded to your staff illness or injuries whether they happen on or off site. Incidentally, any injury or illness as a result of car accidents that occur while your staff are on company business could be covered separately by your car insurance.

The National Health Service are liable to reclaim the costs of hospital treatment (including ambulance costs) when personal injury compensation has been claimed.

Members of staff injured due to an employer's negligence can seek damages even if the business should go into receivership or liquidation.

By law, an employer in the United Kingdom must hold Employers Liability Insurance (ELCI) and have cover of a minimum of £5 million. Most insurers automatically provide a minimum of £10 million cover. ELCI must cover all of your employees in the United Kingdom.

If your business is not a limited company, and you are the sole member of staff or you only employ close family members, you are not required to purchase employers liability insurance. Limited companies with a single employee, where that employee also owns 50 per cent or more of the shares in the company, are also exempt from compulsory ELCI.

Public Liability Insurance

Public Liability Insurance insures against any damages awarded to somebody following damage to their property or an injury that can be blamed on you, your business or your staff. It also covers any related legal costs and expenses together with costs of hospital treatment (including ambulance costs) that the National Health Service may try to claim from you.

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

Certain businesses, e.g. horse riding establishments, are legally obliged to have public liability insurance. It is also likely that a proportion of your customers or potential customers require proof of you holding adequate cover before they will do business with you.

Product Liability Insurance

In product liability insurance (PLI) terms, the definition of a product is any physical item that is sold or given away.

If you supply a faulty product, customers may attempt to claim from you initially, even if you did not manufacture it. You'll be open to claims for compensation if:

• your business' name is on the product - it was manufactured for your brand
• your company fixes, refurbishes 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

Otherwise, liability lies with the manufacturer - or the processor in the case of the item being manufactured from parts made by multiple suppliers.

Property Owners Liability Insurance

Property owners' liability insurance is designed to pay any damages and costs awarded to a member of the public should they be injured following an accident on, or linked to, your premises. This might include costs of treatment in hospital and ambulance charges claimed by the National Health Service, if somebody is awarded personal injury compensation.

In general, it's a sensible idea to ensure that property owners' liability is included in your business insurance - you might find it is also included within  your contents insurance policy.

Professional Indemnity Insurance

If your business involves selling your skills or knowledge, you might wish to consider purchasing professional indemnity insurance.

The product covers your business against claims for compensation brought by a client if you have made mistakes or are deemed to have been negligent in some or all of the services that were provided to them. Professional indemnity insurance will also cover any legal costs.

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

Business Insurance

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