Should an accident occur on your business property, it could lead to a costly lawsuit that could put your business at risk. That’s why many small businesses that work directly with customers or the public choose to purchase public liability insurance.
Public liability insurance covers claims made by third parties, such as customers, clients, or members of the public, as a result of bodily injury or damage to their personal property while they’re on the premises of your business.
Public liability insurance is similar to general liability insurance, but the coverage is more limited. If you’re just starting a small business and don’t need all the coverages included in general liability insurance, purchasing a standalone public liability insurance policy may be a great option.
Read on to learn more about what public liability insurance covers, whether you need it, and how it compares to general liability insurance.
Key Points
• Business public liability insurance protects companies from legal and financial consequences if a third party (e.g., customer or visitor) suffers an injury, property damage, or loss caused by the business’s operations.
• It covers legal expenses, medical costs, and compensation payments arising from claims made by third parties due to accidents or negligence linked to the business.
• Businesses with frequent public interactions, such as retail stores, contractors, and event organizers, benefit most from this type of insurance as it mitigates risks from public claims.
• While not always legally required, public liability insurance is often mandated by clients, landlords, or industry regulations to protect against unforeseen liabilities.
• Businesses can pay for public liability insurance with cash savings or small business loans.
What Is Public Liability Insurance?
Business public liability insurance provides protection to your company if you’re found to be responsible for causing an injury or damaging someone’s personal property while that person is on your company’s property. This can be a customer, client, vendor, contractor, or any member of the public.
There are many scenarios in which your business could be at risk of public claims. Accidents can happen in the course of your business operations, whether it’s a slip-and-fall situation at your office involving a customer, or one of your employees inadvertently damages someone else’s property while carrying out their work duties.
How Does it Work?
Let’s say that someone who works for your interior design company has taken an action that harmed a customer’s personal property. It could be something as simple as offering to carry the laptop of a client so that you can look at their decorating ideas together at your desk, and then dropping and destroying that laptop.
An act of negligence could also trigger a public liability claim. For example, if you washed your reception area floor and you didn’t put up any warning signs — and someone slips, falls, and gets hurt — your business may be open to a lawsuit for negligence. (In fact, it would be up to the judge if the sign is sufficient to avoid liability.)
If someone files a lawsuit against your business for a reason covered by your public liability policy, you file a claim with your insurance company. Your insurance company then typically helps cover your legal costs and pays damages up to the limits of your policy.
How Is It Different from General Liability Insurance?
General liability insurance and public liability insurance policies are similar in that they are both business liability coverages that would pay the legal fees and damages in the event a bodily injury or property damage claim is made by a third party.
General liability insurance, however, provides a business owner with a wider scope of coverage than public liability insurance, including false advertising claims and product liability claims, which public liability insurance doesn’t cover.
General liability insurance also doesn’t limit itself as to where a third party is injured or their property is damaged. If someone is accidentally injured at their home by an employee of a business, general liability insurance would cover that claim while public liability wouldn’t because the injury didn’t take place at the business’s physical location.
The coverage provided by public liability insurance is usually included in general liability policy. General liability policies typically cost more than public liability policies, and also tend to be more widely available.
However, public liability insurance can often be purchased as a standalone policy and may appeal to a small business owner who doesn’t need a wider scope of coverage and wants to spend less on liability coverage.
Here’s a summary of the differences between the two types of business liability policies.
| Public Liability Insurance | General Liability Insurance |
|---|---|
| Only covers bodily injury and property damage claims | Covers a broad range of liabilities, including bodily injury, property damage, personal and advertising injury (e.g. libel and slander), and injuries due to products. |
| Only covers injuries and damage on business premises | Covers injuries and damage on business premises and elsewhere |
Types of Public Liability Insurance
Business public liability insurance generally offers two specific types of coverage:
• Bodily injury: This is when someone in the general public gets injured on the site of your business.
• Property damage: This is when your business is responsible for damage to a third party’s property while they are on your business’s premises.
The policy will typically cover the damages, as well as the cost of legal defense, including court and lawyer fees.
If, for example, you’re in the food industry, or even just provide refreshments to the public at an event, and someone claims that your food or drink caused them to become ill, (and the court rules in their favor), public liability insurance coverage can kick in.
Or, let’s say you own a convenience store and one of your employees spills a soda on a customer’s leather purse, a public liability policy could help cover the cost of replacing the bag and anything inside it that got damaged.
A public liability policy usually only covers bodily injuries your company has caused to members of the public, not to the business owner or employees. And, this type of policy generally only applies to damages or injuries that take place on your business property.
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What Types of Businesses Benefit from Public Liability Insurance?
Businesses that have frequent interactions with the general public, such as restaurants, coffee shops, retail stores, hotels, and dry cleaners, can be good candidates for public liability insurance. Any member of the public or any property of others that you come into contact with in the course of your business operations can be a risk factor.
Companies that have offices where customers or clients regularly visit, and even home businesses that see foot traffic from the public, might also benefit from public liability insurance.
If your business often interacts with the public in other locations, such as the customer’s home or a client’s office, a public liability insurance policy might not offer adequate protection.
Public liability insurance is a more limited policy than other types of business insurance, which means it’s more affordable, but it doesn’t provide as much coverage.
Public liability insurance can be a good choice for businesses who need to save money and have mostly on-premise risks and no exposure to potential personal and advertising claims.
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How to Get Public Liability Insurance
Like other forms of insurance, your business may want to get quotes from reputable licensed agents who provide this type of policy. You can also use online cost estimate tools from insurance companies and agencies.
It can be a good idea to compare rates, terms, and benefits for insurance offers from several different agents or insurance companies in order to find a liability policy that meets your needs and also fits into your business budget.
The cost of public liability insurance will depend on the type of business you operate and the risks involved in running it. For example, a busy coffee shop that has foot traffic all day long will likely have a higher risk, and pay more for a policy, than an accountant’s office that may only see a few clients a day.
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How Does Insurance Impact Your Small Business Loan?
When applying for a small business loan, you may discover that a lender will require you to have certain types of business insurance coverage, as well as a certain dollar amount of coverage. That’s because they want reassurance that if a member of the public gets hurt or otherwise suffers damage on your premises, you’ll have the financial resources to handle any compensation and associated legal fees while still being able to make your loan payments and keep your business running.
If it ends up that your policy lapses during the term of the loan (the lender may check regularly), the financial institution may take out the policy at your expense.
If you’ll be renting property for a small business, then your landlord may have liability insurance requirements as well. That’s because if a member of the public gets injured on your premises or otherwise suffers damage, the landlord will want to be sure you’ll have financial resources to handle the claims and legal fees. When you have adequate coverage, this protects the landlord, too, saving them time and money.
What type and how much liability coverage you need will likely be spelled out in your commercial lease agreement.
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The Takeaway
Public liability insurance is a minimum layer of liability coverage for your company against claims of bodily injury or property damage from the public. It can be especially important for companies that engage in frequent interactions with members of the public.
Compared to commercial general liability insurance, which typically provides more comprehensive coverage for a wide variety of scenarios, public liability insurance tends to be a more limited option that can be more economical for small and midsize businesses that may not have the resources or need to purchase commercial general liability coverage.
Though its protection isn’t as comprehensive, public liability insurance can still protect your business from claims made by third parties for bodily injury or damage to property that they own. This helps ensure that in the event of a claim, the costs of legal defense, court, settlements, and damages don’t have to come out of your company’s pocket and put your business at risk.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
Who needs business public liability insurance?
Public liability insurance is essential for businesses that interact with the public, clients, or customers, such as retail stores, contractors, or event organizers. It’s particularly important if your operations involve high foot traffic or physical interactions.
What does public liability insurance typically not cover?
Public liability insurance usually does not cover employee injuries, professional negligence, or damages caused by defective products. These require separate policies like workers’ compensation or product liability insurance.
How much does public liability insurance cost?
The cost of public liability insurance depends on factors such as the size of the business, industry type, level of risk, and coverage limits. For small businesses, premiums can range from a few hundred to several thousand dollars annually, depending on the policy.
Photo credit: iStock/JLco – Julia Amaral
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