Public liability, professional indemnity and management liability are three important forms of business insurance.
Their names can sound similar, but they are designed to address different risks. Some businesses may need only one or two of these policies, while others may benefit from having all three.
Understanding the basic differences can help business owners ask better questions when reviewing their insurance.
What is public liability insurance?
Public liability insurance generally responds to certain claims alleging that a business caused personal injury or damage to someone else’s property.
Examples may include:
- A customer slipping and being injured at business premises
- A contractor accidentally damaging a client’s property
- Work performed by the business causing injury to a member of the public
- A product supplied by the business causing injury or property damage
Public liability insurance does not automatically cover every incident involving another person. The policy wording, exclusions, business description and circumstances of the claim will determine whether cover is available.
Businesses that sell, supply or manufacture products may also require products liability cover. Public and products liability are commonly included within the same policy, although different terms may apply.
What is professional indemnity insurance?
Professional indemnity insurance generally relates to claims arising from professional advice, designs, reports or services.
A client may allege that an error, omission or failure by the business caused them financial loss.
Examples may include:
- A consultant providing incorrect advice
- An inspector allegedly failing to identify an issue
- A designer making an error in a plan
- A professional preparing an inaccurate report
- A service provider failing to meet an agreed professional standard
Professional indemnity is not limited to occupations traditionally described as professions.
If clients rely on a business’s knowledge, recommendations, reports or specialist services, professional indemnity insurance may need to be considered.
Some policies operate on a claims-made basis. This means the timing of the claim, the date the insured first became aware of the circumstances and the continuity of the policy can be important.
Known circumstances should be reported promptly in accordance with the policy requirements.
What is management liability insurance?
Management liability insurance is designed to address a range of risks associated with managing a company.
Depending on the policy, it may include sections covering:
- Allegations against directors and officers
- Employment practices claims
- Statutory liability
- Crime committed against the business
- Certain legal costs associated with regulatory investigations
- Claims made against the company itself
A management liability policy may become relevant when an employee alleges unfair treatment, a regulator investigates the business or a director is personally named in a claim.
The available cover varies considerably between policies. Exclusions, sub-limits and notification requirements should be reviewed carefully.
How are the three covers different?
A simple way to think about the distinction is to consider the nature of the allegation.
Public liability may be relevant when business activities result in alleged personal injury or property damage.
Professional indemnity may be relevant when advice or professional services allegedly cause a client to suffer a loss.
Management liability may be relevant when a claim arises from the management of the company, its employees or its regulatory responsibilities.
These are general distinctions only. Some incidents may involve more than one policy, and the precise response will depend on the circumstances and policy wordings.
An example involving several policies
Consider an engineering consultancy with employees and an office.
If a visitor trips over a loose cable in the office and is injured, the public liability policy may be relevant.
If a client alleges that an error in an engineering report caused financial loss, the professional indemnity policy may be relevant.
If a former employee alleges unfair dismissal, the employment practices section of a management liability policy may be relevant.
The business operates as one organisation, but the risks arise in different ways and may require different insurance solutions.
Does every business need all three?
Not necessarily.
The appropriate combination will depend on factors such as:
- The activities performed
- Whether the business provides advice or reports
- The number of employees
- The legal structure of the business
- Contractual requirements
- The industries and customers served
- The potential consequences of an error
- The regulatory environment
A sole trader without employees may have different requirements from a company employing 50 people. A retailer selling physical products will have different exposures from a consultant providing specialist advice.
Review the policies together
Business insurance policies should not always be considered separately.
Reviewing the covers together can help identify gaps, overlaps and differences in definitions. It can also help determine which insurer should be notified when an incident could potentially involve more than one policy.
When in doubt, report the circumstances promptly and seek advice rather than waiting for the situation to develop.
General Advice Warning
The information in this article is general in nature and does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your circumstances and review the relevant Product Disclosure Statement or policy documentation.