All you need to know about public and product liability insurance
Many companies in the UK need both public and product liability insurance — it’s even possible to buy them together. But it’s important to understand that these are two different types of insurance that cover different things. While some service-based businesses might be able to skip the combined policy, companies that simply offer an online sales service where customers do not visit, or sell physical goods from a location customers can visit, will still need products liability insurance.
Here, we look in detail at the differences between public and product liability insurance, explaining the ins and outs of each kind, what’s essential, and other factors to be aware of when you’re comparing policies.
What is public and product liability insurance?
Combined public and product liability insurance is a type of liability insurance aimed at businesses that make or supply physical goods, rather than services or digital products, to the public.
Public and product liability insurance is there to protect your business if members of the public claim you’re responsible for illness, injury, financial losses (including medical bills and lost income), or damage to their property.
A combined policy covers you both for accidents that happen at your business and accidents related to defective products. If the worst should happen, your insurance should cover the compensation costs for the person making the claim if the court rules that your business was at fault (that is, if you’re found to have legal liability).
What does product liability insurance cover in the UK?
To give a basic product liability insurance definition: this insurance protects you if a customer claims that a product your company made, sold, or distributed caused them illness, bodily injury, or property damage.
Here, “product” includes all physical items, such as tools, appliances, toys, clothing, and even food sold from shops or restaurants. Your insurance can cover claims relating to faulty products, as long as you can prove that you had an adequate quality control process in place at the time of the incident.
For example, if an electronics company sells computers that cause a series of fires, they’d need to lodge a claim against their product liability or commercial insurance.
Even businesses that only make components of final products should have product liability insurance in place. If the fault in the defective product can be traced back to just one specific element (for example, a faulty dust filter or a fan in a computer), the buck might stop with the company that supplied that particular part, and they’d be responsible for settling the compensation claim.
What does public liability insurance cover?
Public liability insurance covers you if someone is injured at your business premises or because of your business activities. Any business with a physical location that customers visit (like stores, restaurants, offices, or entertainment venues) or that works in public spaces (like builders, decorators, or gardeners) should have public liability insurance.
For example, if someone trips on a step as they go into a shop, the shop’s public liability would cover the cost of compensation. Or if a window cleaner drops a tool and damages a car parked on the street below, their company would rely on their public liability cover for the cost of the repairs.
It’s also important to remember though that if the company are in fact not negligent and it’s actually the member of the public that has been negligent, then the insurer will simply deny any wrong doing and not pay the claim (depending on the evidence supplied).
The difference between public and product liability insurance
Because both product and public liability insurance protect you if a customer or a member of the public takes legal action against your business, it’s easy to see why some businesses assume that there’s an overlap between the two.
The difference lies in the distinction between your business activities and the end product you sell. Public liability covers claims that arise from the tasks you have to complete to keep your business running at its location, and product liability concerns incidents caused by the products you put in your customers’ hands.
Is product liability insurance included in public liability insurance?
Often, insurance providers offer a combined public and product liability plan. Sometimes, combined plans can even include employer’s liability insurance, which all businesses with staff or volunteers in the UK need.
But on the whole, product liability isn’t automatically included in public liability, or vice versa. If you need both kinds of cover, it’s best to either double-check the terms of your combined plan or contact your insurer.
Do I need public and product liability cover?
Neither product liability nor public liability insurance is legally required in the UK. However, there are two compelling reasons to ensure you’ve got adequate cover.
Your business partners might demand it
If you supply or distribute products to other companies, there will probably be a business in your supply chain that insists you have product liability insurance before they work with you.
Likewise, if your business provides a service to another business (for example, making deliveries, painting and decorating, or carpet fitting), the business you’re serving might not sign a contract with you until you show proof of your public liability insurance.
Product liability could protect you if a product can’t be traced
Unfortunately, the original manufacturer of a defective product can’t always be traced. In this case, the responsibility often lies with the company that sold the product to the consumer. For example, if a consumer is injured by a specific component you source from another business, but that company has closed down, you could be legally liable for the damage.
Product liability also covers you if you give away branded products for marketing purposes. If a branded product causes an issue, the company whose name is on the item could be held liable, even though they weren’t involved in the manufacturing process.
It’s also particularly important for businesses that repair or refurbish products, or sell goods second-hand (including charity and antique shops), to have product liability insurance. In these cases, it’s often impossible to trace the original manufacturer or owner.
Liability cover exceptions
On the other hand, some businesses don’t need either public or product liability cover because of what they supply or where they operate. This includes remote businesses that:
Provide advice to their clients
Provide professional services
Sell digital products
For example, accountancy firms or software companies will need professional indemnity insurance or specialised insurance for digital assets. But they don’t need traditional product liability insurance because they’re not selling a physical product.
It’s also important to note that there are some things public and product liability won’t cover, regardless of the type of business you run:
Injuries to employees: This is covered by your legally required employer’s liability insurance.
Injuries or damage caused by company vehicles: You need motor insurance to cover your company vehicles to protect you here.
Pollution caused by your manufacturing processes: Although you might be able to get an insurance payout if pollution comes from a sudden and unforeseen accident, your business insurance won’t help if the pollution was an avoidable part of your regular business activities.
Public and product liability insurance costs
Your insurer will take three main criteria into account when they calculate your premium.
1. The product you manufacture or sell
Products that are more inherently “dangerous” to the consumer will cost more to insure. This is because the risk to the insurer (that is, how likely it is they’ll need to pay out) is higher. For example, the product liability insurance you’d need if you make a motorised kitchen appliance will probably be higher than if you make teaspoons.
2. How much you make or sell
If your production volume is higher, there’s statistically a higher chance that a faulty product could cause an accident that leads to a claim. Larger businesses manufacturing many thousands of units will therefore have higher costs than small businesses that make a few custom orders.
3. Your claims history
As with any insurance policy, if you’ve already claimed in the past, the cost of your premiums is likely to be higher in the following years. This goes for both public and product liability insurance.
Public and product liability insurance: Quick summary
Neither public nor product liability insurance is a legal requirement in the UK, but you may find it difficult to work with other businesses if you don’t have it. What’s more, the high potential costs of legal fees and compensation claims make it sensible to ensure your business is protected.
Depending on your business, you should be able to buy a combined public and product liability insurance policy. This may even cover other types of business insurance, like your compulsory employer’s liability insurance. You can also buy them individually.
Businesses that don’t serve customers face to face at their location might not need public liability cover. And businesses that don’t sell a physical product might need a different type of insurance to cover a digital product or professional service.
If you need a hand, contact the experts at Howden to find out more about the business insurance that best suits your needs.
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