Many people are surprised by the sheer range of events, mishaps and accidents for which the average small business can be liable – and, therefore, be sued. The principle, though, is very simple and straight forward: if a third party (whether it be a client of the business, an employee or a member of the public) is injured or if their property is damaged, then the business responsible can be sued and held liable for the damage or injury caused. If the business is held liable, then financial compensation in the way of damages will be awarded to the person or persons suffering the loss. Liability insurance for small businesses safeguards the business against the cost of such liability awards.

The following are some of the principal areas in which the small business may find itself facing claims of liability:

Public liability

As the term suggests, this arises in those instances where a member of the public suffers an injury or has his or her property damaged by the small business. Public liability insurance will cover any legal fees incurred in establishing the liability, together with any medical costs (doctors, hospital and ambulance fees) incurred, including those provided by the National Health Service (which the NHS will reclaim from the liable business). Although public liability cover is not legally required, many small businesses may find it difficult to operate successfully without it.

Employers’ liability

Although not all small businesses have employees, those that do will be required by law to have adequate insurance in respect of claims from employees who suffer injury or contract illnesses as a direct result of their employment. Not only is there the direct compensation to the employee to consider, but also the cost of any medical treatment, including that reclaimed by the National Health Service. The law requires a minimum level of cover of £5 million and most insurance policies are written to provide a minimum of £10 million. Such liability insurance for small businesses certainly cannot be overlooked, not least because the financial penalties for failing to provide such cover are up to £2,500 a day.

Product liability

The small business can be held liable for any damage or injury caused by any product it supplies (whether sold or provided free of charge). The closer the small business’ identification with the product concerned, the more likely that business – rather than the actual manufacturer of the product – will be held liable. The amount of product liability insurance taken out by small businesses ranges from £1 million to £5 million, with a typical level of around £2 million.

Professional indemnity

Liability insurance for small businesses providing mainly services rather than products are more likely to consider professional indemnity insurance. This protects the business against claims arising from mistakes and errors of judgement made in the provision of services and is particularly appropriate for professionals such as lawyers, financial advisers, accountants, architects, engineers and other consultants.

Property owners’ liability

Clients and members of the public can claim against the business for any injury or damage caused to their property as a result of an incident on, or connected with, the premises occupied by the business. Although indemnity is usually included in the public liability insurance incorporated into the property owners’ general insurance, this might need to be clarified in those instances where the property is owned by a landlord and the business has insured only the contents.

Summary

Liability insurance for small businesses, therefore, covers a variety of important areas and headings, including those which the business is legally required to hold. Even where there is no such statutory requirement, however, the financial risks of claims for liability and subsequent compensation are such that each of the above areas deserves careful consideration by the prudent small business.