Liability Insurance

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Running a business creates considerable legal responsibilities towards your employees, the public and customers. Injury to your employees and members of the public could result in you being legally liable to pay damages if you or your employees have been negligent or found in breach of a statutory duty.

An employer's statutory duties are set out principally in the Health and Safety at Work etc Act 1974 and associated Regulations. You must identify the safety and health needs of your particular business activities by carrying out a risk assessment and take action to remove or control the risks in line with the appropriate legislative requirements. Good management is an ongoing process. Should you make any changes in your workplace, you should reassess the hazards present.

Advice on good health and safety management is available from the Health and Safety Executive and local authority environmental health departments. Further, your liability insurer or broker will be able to provide assistance with risk assessments and action plans.

Liability insurance will pay the amounts of any court awards or damages, claimants' costs and expenses where you or your employees are held legally liable, subject to any policy limits.

What does Liability Insurance do?

Liability insurance pays for compensation when someone has been held legally liable for an adverse event. Liability insurance is generally required by businesses, not individuals, although most travel insurance policies will include some personal liability cover in case you are involved in an accident abroad.

Employers' liability (EL) insurance is compulsory for nearly all employers who must insure for a statutory minimum of £5 million.

As with all insurance the precise cover depends on the wording of the insurance policy.

The main liabilities which you face in business are:

Employers' liability

By law, all employers must insure against their legal liability for injury, disease or death to employees sustained by them and arising from their employment.

Employees will normally include, in addition to those under a contract of employment, apprentices and other trainees and those hired from another employer. The only exception is where all your employees are close relatives and you should check if you think that this may apply to you.

You are legally required to insure for at least £5 million but in practice, most policies offer £10 million minimum cover. The law also requires that you exhibit a certificate of employers' liability insurance at each place of work. Failure to meet this requirement could constitute a criminal offence.

Public liability

Public liability insurance covers your legal liability to pay damages to members of the public for death, bodily injury or damage to their property which occurs as a result of your business activities. It also covers legal fees, costs and expenses such as representation at any coroner's inquest, fatal accident enquiry or other court hearing because of an accident.

When deciding on how much cover to buy, you should carefully consider the maximum claim that could be made against you. Awards for injury can exceed £1 million. Certain businesses, where there is a spreading fire or possibility of multiple personal injuries, could face claims for damages far exceeding this figure. The limit of indemnity will apply to claims arising from a single incident.

Product liability

If you make, repair or sell products, you could be held legally liable for damage or injury arising from defects in their design or manufacture even if you have not been negligent. Product liability insurance covers you in these circumstances up to a maximum amount each year.

The Consumer Protection Act 1987 makes it a criminal offence to supply unsafe consumer goods.

Motor vehicle liability

By law you must insure your legal liability for injury to others and damage to their property arising from the use of vehicles on the road - third party insurance.

Most business policies are comprehensive or third party, fire and theft. Comprehensive cover includes damage to your vehicle. The third party section of a commercial vehicle policy will meet your legal requirements to cover your liability to others.

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