Written byPublic liability insurance is business cover that pays compensation and legal costs when your work injures a third party or damages their property.
Also known as: public liability cover, PL insurance, third party liability insurance
Key points
- It answers claims from members of the public, such as a customer injured on your site or a wall damaged while you work.
- No law makes it compulsory for most businesses, but head contractors, landlords and councils routinely require it in a contract.
- Cover is bought to a limit, and the product disclosure statement sets the excess, exclusions and any capped items.
- It does not cover your own tools, vehicles or staff: those need separate insurance and workers compensation.
- Suppliers and financiers sometimes ask for a certificate of currency before releasing an asset on equipment finance.
What public liability insurance covers
The cover picks up your legal liability to other people. If a visitor trips on your extension lead, if a bin you left out damages a car, or if a plumber floods the unit below, the insurer pays the compensation and the legal costs up to the sum insured.
It also matters after the job ends. Products and completed operations extensions cover harm caused by work you finished or goods you sold, which is why the policy usually needs to stay in force even once the site is handed over. What is excluded, including asbestos, professional advice and faulty workmanship itself, is in the wording.
Who needs public liability insurance
Any business that has people, sites or property in its path. Trades, retailers, cafes, market stallholders, cleaners, event organisers and mobile operators are the usual holders. A sole trader is personally exposed to a claim, so the cover is often the first policy taken out.
Contracts usually set the required limit. Principal contractors, shopping centres and government agencies commonly ask for a stated amount before you can start work, and they want a certificate of currency each renewal. Businesses running heavy plant and machinery usually carry higher limits, because the potential damage is larger.
Example
A tiler working on a shop refit leaves a stack of offcuts near the entry while he moves the mixer. A delivery driver clips them, falls and breaks a wrist, and later claims for lost income and surgery. The tiler notifies his public liability insurer, which investigates, negotiates and pays the settlement plus the legal costs, less his excess. Without the cover, that claim comes out of the business, and as a sole trader he would be personally on the hook for the shortfall.
Not to be confused with
- Liability
- a liability is any amount you owe; this insurance covers claims made against you
- Business risk
- business risk is the broader exposure; this policy answers only third party injury and damage
Frequently asked questions
What does public liability insurance cover?
Compensation and legal costs when your business activities injure a third party or damage their property. That includes customers on your premises, people at a site you work on, and harm caused by work you have completed. Cover applies up to the limit you buy, less the excess.
Is public liability insurance compulsory in Australia?
Not by law for most businesses, though some licensed trades and some states require it for particular occupations. In practice it works like a requirement, because contracts, landlords, councils, markets and principal contractors generally will not let you work or trade without a current certificate.
How much public liability insurance do I need?
The limit is usually set by whoever you work for, with larger contracts asking for higher amounts. Beyond any contract requirement, size it against the worst realistic outcome of your work rather than your turnover. An insurance broker can help you match the limit to the exposure.
Does public liability cover my employees?
No. Injuries to your own workers are handled by workers compensation, which is compulsory in every state and territory and arranged through the relevant scheme. Public liability covers members of the public and other third parties. Contractors sit in a grey area, so check how your policy defines them.
Is public liability insurance tax deductible?
Premiums for cover taken out for the business are generally deductible in the year you pay them, as an ordinary business expense. Apportion if the policy also covers private activity. Check the current position with your accountant or the ATO before relying on it.
Related terms
Broader term: Insurance
Insurance
Insurance is a contract where you pay a premium and an insurer covers specified losses, such as damage to a financed asset or a lender's loss on default.
Read definitionLiability
A liability is a legal responsibility to pay money or answer for a loss; in accounting, a present obligation to transfer an economic resource, shown on the balance sheet.
Read definitionBusiness risk
Business risk is the chance that an event or condition stops a business meeting its objectives, from profitability and growth to regulatory compliance and continuity.
Read definitionProduct disclosure statement (PDS)
A product disclosure statement (PDS) is the document a product issuer must give a retail customer before they buy a financial product, setting out its features, risks, fees and costs.
Read definitionEquipment finance
Equipment finance is business finance used to buy or lease machinery, vehicles and other equipment, where the equipment itself secures the loan or is owned by the financier.
Read definitionSole trader
A sole trader is the simplest Australian business structure: one person owns and runs the business, keeps the profits, and is personally liable for its debts.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.