If someone trips over your signage, slips in your shop, or claims your business caused property damage, you could face legal and financial consequences—even if it wasn’t your fault. That’s where public liability insurance steps in: to protect your business from the unexpected.
But what many policyholders don’t always understand are the key details: How much coverage do you actually have? What’s your financial responsibility? And does your policy cover the cost of legal defense?
Let’s break down the three pillars of every public liability policy—policy limits, excess, and defense costs—so you know exactly what to expect if you ever need to file a claim.
1. What Is Public Liability Insurance? (Quick Refresher)
Public liability insurance covers your business if a third party (like a customer, visitor, or vendor) suffers:
- Injury on your premises
- Property damage caused by your business operations
- Legal costs associated with defending a claim
It doesn’t cover employees (that’s employers’ liability) or professional advice (that’s professional indemnity).
2. Policy Limits: How Much Coverage Do You Have?
Your policy limit is the maximum amount your insurer will pay for a claim. This typically comes in two forms:
🔹 Per-Claim Limit:
The maximum amount paid for a single incident (e.g., $1 million per occurrence).
🔹 Aggregate Limit:
The maximum amount paid over the entire policy period, often one year (e.g., $2 million total coverage).
Example: If your policy has a $1M per-claim and $2M aggregate limit, you could cover two $1M claims in a year—but a third claim wouldn’t be covered unless you raise the limit.
Choosing the Right Limit:
- Small retail shop: $1M–$2M may be sufficient
- Contractor or tradesperson: $5M is often required by contract
- High-traffic businesses or events: Consider $10M+
Pro tip: Some clients or venues may require proof of a minimum limit before they let you operate on-site—always check!
3. Excess: What You Pay Out of Pocket
The excess (also called a deductible) is the amount you must pay toward a claim before your insurance kicks in.
Typical excess amounts:
- $250–$1,000 for small businesses
- Higher excesses for high-risk industries (e.g., construction)
Example: If you cause $5,000 in damage and your excess is $500, you pay $500 and your insurer covers the remaining $4,500.
Lower excess = higher premiums
Higher excess = lower premiums
Tip: Choose an excess that balances affordability with the level of risk you’re comfortable absorbing on your own.
4. Defense Costs: Are Legal Fees Covered?
Good news: most public liability policies include defense costs, but here’s what you need to watch for:
✅ Covered:
- Legal representation
- Court filing fees
- Investigation or expert witness costs
- Out-of-court settlements
⚠️ Watch for:
- Whether defense costs are included within your policy limit (called “within limits”) or in addition to your limit (called “outside limits”)
Better for you: Outside the limit policies—this means defense costs don’t reduce the amount available to pay the actual claim.
Example: With a $1M policy:
- “Within limits”: $200K in legal fees = $800K left for the claim payout
- “Outside limits”: $200K legal fees = $1M still available for damages
Final Thought: Don’t Just Have Insurance—Understand It
Public liability insurance is more than a checkbox—it’s a lifeline for your business when things go wrong. But understanding your limits, excess, and defense cost structure is key to making sure that safety net actually holds.
When in doubt, speak with your insurer or broker to confirm:
- How much you’re covered for
- What you’ll pay out of pocket
- Whether legal costs are eating into your protection
Because when you’re facing a claim, the last thing you want is a surprise buried in the fine print.
Author: AI Generated