Is public liability insurance compulsory?

By AAMI 12 August 2022

Public liability insurance can be a source of confusion for many small business owners. That’s understandable since it covers a wide variety of situations, events, and circumstances.

To provide more clarity, we sat down for a chat with Suncorp Senior Product Specialist, Warren Turner.

What is public liability insurance?

“In a legal sense, public liability is an area of compensation law that covers any claims that fall outside of workers’ compensation, medical negligence and road and vehicle accidents,” says Warren.

Here are some practical examples to demonstrate where you may have to pay compensation and related costs:

injury to someone else, for example, if someone trips over equipment at your business and injures themselves or if someone slips on a wet floor in a shop and sustains an injury.
damage to someone else’s property, for example, if you’re installing a new light for a customer and accidently drop your drill breaking their glass coffee table.
injury or damage caused by products - some policies cover products liability as well, such as if someone gets sick after eating undercooked seafood at your restaurant.
damage to property in your control, for example, if you're parking a customer’s car and accidentally scratch the side mirror.
legal defence and compensation costs related to a claim against you.

Public Liability insurance covers two key financial risks according to Warren, “one is the legal cost of defending a claim, the second is the compensation that you may be directed to pay the injured or wronged party, plus their legal costs, if a claim against you is upheld.”

Is public liability insurance required by law?

“Though public liability insurance requirements differ from state to state and on the type of industry, in some industries, it may be a requirement in order to obtain a licence. However, it may be something that all businesses in all industries consider. The likelihood of being sued for negligence is unpredictable and potentially very costly,” says Warren.

Types of insurance that are required by law include:

Workers’ compensation insurance if you have employees.
Third party personal injury insurance if you own a registered motor vehicle. This is often included as part of your vehicle registration fee, but not always.

There are situations where public liability insurance might be compulsory. For example, in certain public events and facilities, Public Liability insurance is compulsory, and it is checked through a licensing authority.

AAMI’s public liability Insurance is also known as Public and Products Liability Insurance. You could find coverage here for liability owing to products you sell, in addition to public liability insurance.

“When purchasing the AAMI Business Insurance you can select your choice of covers, although Public Liability is a mandatory cover,” says Warren.

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Covering contractors, sub-contractors and labour hire resources

“When it comes to contractors and sub-contractors, it will often depend on the type of work being undertaken, the supervision you provide and if there was legal liability or negligence involved,” says Warren.

It is important to note that sub-contractors may not be automatically covered under a public liability policy. “As sub-contractors can work for more than one company at a time, they may need to be specifically added to a policy, which will generally mean an increase in premium,” says Warren.

Also, a sub-contractor may not automatically be covered by your policy for the work they do for you, but they are still third parties to your policy so it is possible they could still make a claim against you.

“A lot of the time sub-contractors have their own public liability policy. Either way, it is important to talk to your sub-contractor to ensure you are covered should an incident occur,” adds Warren.

Type and level of public liability insurance cover

Though you might find that you are covered for public liability as part of other insurance products, consider whether the amount you are covered for public liability insurance is enough.

“An insurer might offer a cheaper premium by including only a small amount of public liability insurance. Having the right level of insurance can be an important consideration when looking at your business plan.” says Warren.

The minimum about of public liability insurance available is $5 million with any insurer. There is no set maximum limit, however for most standard policies the maximum will likely be $20 million.

“If you decide to double your cover to $10M, your premium would increase but it would not double,” says Warren.

With AAMI, you can choose from four different levels of public liability cover: $5 million, $10 million, $15 million (not available online) or $20 million.

A final word on public liability insurance

Public liability claims against your business can be costly, interrupting trading and impacting your hard-earned reputation.

“It’s important to remember that public liability on its own won’t cover your business for every risk that it will face, but it can be packaged with a range of other covers to help provide cover,” adds Warren.

Public Liability insurance may be tax deductible, as your insurance premiums are a business expense.

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Insurance issued by AAI Limited ABN 48 005 297 807 trading as AAMI Business Insurance. Read the Product Disclosure Statement before buying this insurance. The TMD is also available. Go to aami.com.au. This advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.