Join The Debate… Should Public Liability Insurance Become Compulsory?

Join The Debate… Should Public Liability Insurance Become Compulsory?

Firstly, is Public Liability Compulsory for businesses under UK law?

To start, no, there's no general rule for all businesses that they have to have Public Liability Insurance. However, cover may be a requirement for certain contracts.

While a Public Liability policy is not currently compulsory for many industries, the collapse of Thomas Cook in 2019 sparked conversations with both industry leaders and consumers that public liability cover should be a legal requirement no matter what the business type or claims value.

If you are unfamiliar with Public Liability, check out our blog post: What is Public Liability?

What does Thomas Cook have to do with Public Liability?

Thomas Cook self-insured most small incidents. This means that they settled claims out of their own pocket. This is not necessarily an unreasonable thing to do... provided that you can guarantee that you will be operating forever. Which, nobody really can.

As Thomas Cook only had formal Public Liability cover for high-value claims, post-liquidation, many customers are left unable to receive compensation for losses and injuries that were the fault of Thomas Cook.

Therein lies the question: should it be a legal requirement for businesses to have broad Public Liability cover?

Should Public Liability be a Legal Requirement?

Public liability is often overlooked, and, although set up to protect consumers, it has some major benefits for organisations too. Whatever the size of your business, if members of the public interact with your company, it may well be worth a second look.

Should the worse happen, for example, your plumbing company receives a call about a burst pipe you fitted, or perhaps your mobile catering business accidentally undercooks a dish at a summer festival, third-party public liability insurance will be able to handle any complaints and subsequent pay-out.

However, what happens if your business ceases trading and does not have a Public Liability policy before closing? Who deals with any Public Liability Claims?

Thomas Cook's collapse  highlighted the risky alternative of being caught paying for damages and claim costs out of your own savings pot. What's more, had Thomas Cook had public liability on all claims, a third-party insurer would continue to handle claims after its liquidation, making sure none of their claimants lost out.


Self-Insurance is a Risky Business

Other than the concern that one day you will cease trading, there are more risks to self-insurance.

With self-insurance, you get nowhere near the level of cover that you would with a party with a third-party insurer.

Now, self-insurance isn't always bad for all risks. Often it can be a reasonable response to small losses that would ultimately cost you less than the premium and excess of a formal insurance policy.

However, it's not considered a reasonable substitution for Public Liability insurance where legal costs and compensation pay-outs can run into the thousands.


But surely it should be the business owner's choice? Aren't they the one who faces the losses?

Unfortunately, in Public Liability cases, it is not only the business owner who will lose out.

Public Liability insurance covers your legal liability for a handful of distinct accidents as a result of your business activities:

  • Damage to Property
  • Bodily Injury or illness
  • Accidental death

These incidents can occur both at your business premises, or offsite. For instance, at a client's home or an event that you have been contracted for.

For example, when a customer enters a shop, they do not expect to sustain an injury. However, on that particular day, maybe someone came through with a toddler who spilt some juice on the floor, making it slippery.

Maybe there is a looming issue with their shelving unit that they haven't identified and is set to collapse any moment.

If the shop owner does not have Public Liability, cannot pay out of pocket and has no assets to liquidate, is it fair that the customer doesn't get the compensation owed?

This is by no means a new idea.

What Business Insurance is Compulsory?

Many medical professionals must have indemnity by their respective governing bodies for treatments, advice, diagnostics etc. While this is beneficial to the practitioner as the cost of compensation and legal fees can be very high, the true reason for this rule is to protect the patient for the reason above. They deserve compensation.

The same applies Employers' Liability Insurance, which is compulsory in the UK for all employers, save for a few exceptions in some non-limited companies that only employ immediate family members.

The Employers' Liability (Compulsory Insurance) Act 1969 was put in place to ensure that should an employee be injured at work they would receive compensation.

Not having cover when you should can result in heavy fines. So it's important to ensure that you have the correct level of Employers' Liability cover always.


What if I do regular risk assessments?

Carrying out regular risk assessments can decrease your chance of common incidents but does not substitute for a robust Public Liability insurance policy.

Can Businesses Fold Under Large Claims When They're Uninsured?

Absolutely, the risk of not having business insurance is that should a major incident occur, your business will have to put up the cost. This applies to any assets or incidents such as the loss of equipment.

Say you are a manufacturer and a fire at your factory sees most of your expensive, bespoke equipment destroyed. Without property and business interruption insurance, your business would surely fold, right?

Even if you have enough money in reserve to replace that equipment, between delivery and installation times you have to deal with delays in productions, loss of contracts and potentially having to make employees redundant, you probably won't have a rainy day fund big enough to cover outgoings and replacement costs.

Apply this to a widescale Public Liability claim. When opening the doors to the public, there is a certain level of risk that business owners take on in the way of potential injuries and property damage.

For instance, if a member of the public is injured on your business premises, they can sue you for damages. Perhaps on one particular occasion, several people at once are injured. Suppose the roof falls in or the shelves collapse on a hoard of Black Friday sales patrons.

That could be thousands and thousands of pounds that many small businesses don't have tucked away. While you may think: couldn't be me, it might be somebody. Shouldn't members of the public have legal protection when they enter a place of business? or when that business enters their home?

Imagine you are the injured party. You go to sue the business for damages for your rehabilitation costs and loss of earnings. However, you find out that the business doesn't have insurance, and they cannot deal with the onslaught of liability claims.

The business subsequently liquidates their assets and shuts down, but it doesn't cover all the claims, and the trail goes cold. Who is liable for your compensation costs now?

Surely there should be some legal protection for people like you in this situation? No, there really is not. Hence the question: should Public Liability Insurance be compulsory?

So here are the key reasons it should be:

  • Protects members of the public and ensures that they get the compensation they deserve following a loss or injury caused by the business activities of a third-party
  • Businesses that self-insurance may not always be around when a claim comes through
  • Protects businesses from shock costs that lead to instability and job losses

And the reasons it perhaps should not:

  • The risk effects each industry differently, so some businesses are not at risk of high-cost public liability claims.
  • Some businesses are happy to self-insure or part self-insure (but, again, we circle back around to what happens if they close?)

In conclusion, we must ask ourselves this:

  • Do businesses have a responsibility to ensure that people who've suffered losses due to their business activities get the right amount of compensation?
  • Is self-insurance enough when a business could fold and leave no one to pay-out on compensation claims?

To find out more about how we can provide public liability for your business, contact us today on 0330 1240730