The difference between Public Liability and Professional Indemnity insurance is that one covers physical damage and the other covers virtual damage. You may not need both in your particular contracting profession – however, it’s important to note that the two apply together more often than you’d think.
What is Public Liability (PL) insurance?
Public Liability (PL) insurance covers the cost of a claim made by someone who has suffered injury or property damage as a result of work you’ve done. This can be made by a client or a member of the public. It covers the ‘physical’ damage caused by a mistake.
An obvious example of when PL insurance would come into effect is if you’re hot desking as an IT contractor and someone trips over your laptop bag, causing them to break their arm and their own laptop (which they were carrying) in the fall.
You could also be subject to a claim after a construction job has been completed, like if a skylight pane falls out and injures a client. Liability for this, of course, would be more subjective. Whether you’re at fault as the contractor can depend on the amount of time passed and how the client’s maintained the work done, but proving liability can still result in a costly trial.
What is Professional Indemnity (PI) insurance?
Professional Indemnity (PI) insurance is the ‘virtual’ damage caused by a mistake. Virtual damage is a claim made by a client who suffered monetary loss – directly or indirectly – because of a mistake you made when providing your advice or services i.e. an error or omission. PI insurance would apply, for example, if you were an accountant who misplaced your client’s financial documentation. If the client were to claim compensation for a breach of data, luckily PI insurance would cover you, along with any legal fees and time away from work needed to defend yourself.
PI also protects against professional negligence claims. If you’re working as a business consultant and you give advice to a client that leads to a significant financial loss, you could face a substantial PI claim that could bankrupt smaller contractors without cover.
Am I required to have Public Liability (PL) insurance?
While it’s not illegal to work without it, many clients will include in their contract that you must have PL insurance in place. This is because having some form of PL cover is generally regarded as contractor best practice.
All contractors should consider having a minimum amount of PL cover, but those working in manual professions especially - like construction, the energy sector, and any kind of forensic science - will almost certainly need it. The amount of PL insurance you need will most likely be stated as part of the client contract.
However, there’s still a risk of a claim in office-based jobs too. A clumsy moment whilst handling heavy server equipment, for example, could cause both property damage and injury. Even careless tripping hazards could lead to a claim.
It’s also worth bearing in mind that while PL isn’t required legally, Employer’s Liability (EL) insurance is - provided that you have two or more people in your company. EL cover pays for compensation costs and legal fees if an employee, or ex-employee, sues for illness or injury caused by their work. Read more on EL insurance here.
Am I required to have Public Indemnity (PI) insurance?
PI insurance also isn’t a legal requirement, but almost all clients will include a PI clause in their contract. In fact, winning work may prove difficult if you don’t have a policy in place permanently.
The professions most likely to benefit from PI cover are ones that handle sensitive data on a daily basis, so it’s essential for software developers and accountants. Their mistakes have the potential to cause far-reaching financial repercussions.
Other, less obvious high-risk professions are business or management consultants, architects, and media professionals. Each of these jobs could cause their clients huge losses if services like their advice or designs are not up to industry standard.
That said, the general rule is that all contractors should consider having a PI policy ready. No matter how scrupulous you are in your practice, Professional Indemnity not only offers peace of mind, but also makes it much easier to win new clients.
Do I need both?
It’s important to remember that these two insurances certainly aren’t mutually exclusive and that sometimes you may need both. In certain professions, the potential for a double-whammy can be higher than you think.
A clumsy server technician will make a great example for this scenario, too. Let’s say he spills a full cup of tea on a server, which promptly sparks and dies. This particular server contained thousands of client data files, including addresses and bank details. Not only does he have to replace the server that he’s irretrievably damaged, but he also has to face repercussions for the loss of sensitive data: this twofold claim would require both PL and PI cover to survive as a small contractor.
Many clients may also require you to have both, regardless of your risk factor. Building contractors could lose sensitive documents or payment details, while accountants could damage a client’s laptop while working from their offices. Having both forms of insurance covers all eventualities.
For more information on how professional indemnity insurance can help your business, visit our knowledge hub where you’ll find helpful articles on everything from contractor guides to IR35 news. If you’re ready to begin protecting your business with a PI and PL insurance package, browse our business insurance options or contact our experts today.