Trades

£2m public liability insurance: per claim limits, costs and aggregates

£2m public liability insurance usually pays up to £2m per occurrence. How legal costs, aggregates and several claims from one job affect the payout.

A £2m public liability insurance policy will usually pay up to £2 million for any one occurrence, so one incident, and every claim that comes out of it, is capped at £2m, while a separate incident later in the year gets its own £2m. Whether legal costs come out of that £2m or are paid on top, and whether there is also a yearly cap, depends on the wording in your policy schedule.

What does public liability insurance cover?

Public liability covers your legal liability when your work injures a member of the public or damages their property. The Health and Safety Executive puts it simply: it covers claims made against you by members of the public or other businesses, but not claims by your employees.

For a tradesperson that might be a customer tripping over your cable or a ceiling damaged by a leak from pipework you fitted. You normally have to be found legally liable (at fault) for the policy to pay.

West Sussex County Council's guide lists what a public liability policy will usually pay towards:

• compensation to the injured person
• the cost of repairing damage
• legal fees for defending the case
• other expenses
• hospital treatment, including ambulance costs, that the NHS may recover from you

Policies also carry exclusions. A University of Manchester insurance guide notes that offshore work and asbestos are generally excluded from public liability policies, and motor risks need a separate motor policy. If your trade touches any of these, check the wording rather than assume you are covered.

How the £2m limit works: any one occurrence or aggregate

The £2m is the "limit of indemnity", the most the insurer will pay. The University of Manchester guide defines it as the maximum the policy will pay "in respect of any one claim or series of claims resulting from any one event", and adds that some policies also limit the total payable in the "aggregate", meaning the total in any one annual period of cover.

So there are two ways a limit can be written, and your schedule may use one or both:

The Northern Ireland Department of Finance describes the same idea for contract liability caps in its guidance on government contracts: a total aggregate limit creates a "pool", and once that pool has been exhausted, nothing more is available. An aggregate insurance limit works in a similar way.

If your schedule shows an aggregate, it will say which sections it applies to, for example products liability. Look for the words "in the aggregate" or "any one period of insurance" next to the figure.

What if one job leads to several claims?

Because the limit applies per occurrence, claims that come from the same event are usually added together and treated as one.

For example, with made-up round numbers: a gas leak from a boiler you fitted damages the customer's house and the house next door, and injures a visitor. That could mean three claimants, but if it all stems from one incident it is one occurrence, and all three claims share the single £2m. You do not get £2m each.

Policy wordings spell this out in different ways. One professional indemnity policy looked at by the Financial Ombudsman Service said that where a series of awards arose "from a single originating cause, event or source", the total would not exceed the limit in the schedule. The University of Manchester guide describes liability limits in the same way, as applying to "any one claim or series of claims resulting from any one event", so read how your own policy defines an event.

Are legal costs paid inside the £2m or on top of it?

There is no single answer. Some policies pay the insurer's defence costs and the claimant's costs on top of the £2m ("costs in addition"). Others count them as part of the £2m ("costs inclusive").

The difference matters on a large claim. For example, with made-up round numbers, imagine £1.8m compensation and £300,000 in legal costs:

Look for wording such as "inclusive of costs", "including claimants' costs and expenses" or "costs in addition". The University of Manchester's own professional indemnity schedule, for instance, states its limits are "inclusive of the Deductible, interest and claimants' costs and expenses". The Ombudsman decision above quoted a costs limit that would "form part of and not be in addition to" the main limit.

Even the legal minimum for employers' liability works this way: the HSE notes that the £5 million minimum level of cover includes costs. Check the claims conditions too: the University of Manchester's policy, for example, only pays defence costs the insurer has agreed to in writing.

Is £2m public liability insurance enough?

There is no legal minimum for public liability, so "enough" depends on the work you do and who you do it for. West Sussex County Council says typical limits start at £1 million and go up to £5 million and £10 million, and that clients or industries often set the level they want you to hold.

Some examples from public bodies:

• West Sussex County Council requires £10 million from organisations working for it, though this can be reduced after a risk assessment.
• The Northern Ireland Department of Finance suggests £10 million for construction works and services contracts and £1 million for supplies and services.
• The University of Manchester treats £5 million as a starting minimum for its suppliers.

The University of Manchester guide lists the factors it weighs when setting a public liability level: how many adults and children could be injured, the value of the building being worked on, the income that could be lost if it is damaged, how dangerous the activity is, and whether it takes place in a public place.

Your liability is not capped at your insurance limit. The Department of Finance guidance makes the point from the client's side: if a loss goes beyond the contractor's insured limit and the contractor cannot fund the difference, the client is left carrying that extra risk. Its model contract clauses also say the amount of insurance cover does not relieve the contractor of its liabilities under the contract. Our guide on how much public liability cover tradespeople need, from £2m to £10m looks at which jobs typically ask for more.

Public liability insurance for sole traders: what do you need?

The HSE describes public liability as "generally voluntary", while employers' liability is compulsory. That makes the position for sole traders fairly clear:

• Working alone with no staff: public liability is not a legal requirement, though many customers, letting agents and main contractors will not let you start without a certificate.
• Once you take someone on: GOV.UK says you must have employers' liability insurance from an authorised insurer as soon as you become an employer, with at least £5 million of cover. You can be fined £2,500 for every day you are not properly insured.
• Family-only businesses: you do not need employers' liability if you only employ close family members, but the HSE says this exemption does not apply to family businesses set up as limited companies.
• Labour-only subcontractors: the HSE says it is the real nature of the working relationship that counts, not what you call it or their tax status. If you control where, when and how someone works and supply their materials and equipment, you may need employers' liability cover for them. The Northern Ireland Department of Finance guidance also notes that the definition of employee can include labour-only subcontractors.

What to check before you buy or renew

When you get tradesman insurance quotes, you fill in a short form and a specialist broker contacts you with quotes. Whichever policy you look at, these checks will show what the £2m really means:

1. Find the limit of indemnity on the schedule and see if it says "any one occurrence", "any one event" or "in the aggregate".
2. Check which sections, if any, have an aggregate limit, such as products liability.
3. Look for "costs inclusive" or "costs in addition" wording next to the limit.
4. Read how the policy groups several claims from one cause or one event.
5. Check the exclusions against your actual work, including heat work, height limits, asbestos and work on occupied premises.
6. Compare the limit with what your clients and contracts ask for in writing.
7. Note the excess, the part of each claim you pay yourself.

On price, West Sussex County Council notes that premiums vary with what is included and excluded, the nature of the business and the risks in your line of work, and that no claims discounts can apply to businesses without claims. The council's guide also lists steps it says may help with the cost of cover, including making sure people are trained and qualified, using the right equipment, keeping a record of risks and telling the insurer about all the work you do.