Public Liability Insurance – What For?

Insurance – it’s an important consideration for every business, but do you really need it if you’re selling online? After all, it’s not like you have a shop or office where customers come… in fact you may not deal face to face at all. So in that case – public liability insurance, which is something that most traditional businesses have, would be a useless and unnecessary expense, right?

Well, not quite… there are still many reasons why you may need business insurance, even if you only operate online.

When you sell items online, such as electronics, clothing, cosmetics, hair-care products etc. (anything really!), you are legally responsible for any damage or injury caused by those products.

Let’s say you sell specially made birthday cupcakes online and one day one of your buyers blames you for food poisoning… or you sell unbranded mobile phone chargers and someone says their house fire was caused by your faulty product… what then? How will you cover the legal fees defending yourself, never mind any potential compensation you have to pay?

This is even more important for sole traders as covered in this blog post, a sole trader is personally responsible for all business liabilities. So it’s not even a matter of your business going bust, you yourself can be bankrupted by a claim like this!

So suddenly insurance doesn’t seem like such a frivolous waste, but rather something that you need to cover you in case of such an occurrence.

But the problem is, as I mentioned earlier, this is not something that would be covered under public liability insurance – so what type of insurance do you need? After all, the only thing worse that having no insurance is paying for something that won’t even cover you when you need it!

So let’s quickly run through a few of the different types of business insurance available and go over what exactly they cover.

Public Liability Insurance

Generally the most common form of business insurance for traditional B&M sores, public liability insurance covers you and your business against claims for accidental damage caused to property or an individual on or around your premises or as a result of your business activities.

For example, let’s say you have a retail store and one day one of your customers slips on a carpet and breaks their arm. They would be within their right to sue you for compensation and public liability insurance would cover you for the cost of legal fees, medical bills and any additional compensation awarded.

How much cover do you need? Well this will depend on each business individually but generally cover starts from £1m, going to around £5m.

And just to clarify something as there seems to be some misconception about this: you are NOT required to have public liability insurance and there is no law that stipulates it is a requirement for a business to be covered. However – you’ll often find that contracts and other companies you deal with often insist you have a certain level of cover. For example, if you work with local authorities they may insist on £5m or if you’re renting business premises the landlord may require proof of your insurance.

Product Liability Insurance

Usually the most important part of business insurance for online eCommerce store owners or eBay sellers, product liability insurance covers you for any damage or injury caused by a faulty product that your business designs, manufactures, or supplies.

As in our earlier examples of selling cupcakes or phone chargers imported from China, product liability insurance is a must-have.

If the manufacturer is based in the EU and you only sell the goods, you may not be legally responsible under certain circumstances but remember; the contract is always between you and the buyer so even then you would need to cover the initial legal fees associated with any claim, before you can pass it onto the manufacturer.

So unless you plan on keeping a large reserve of capital for this, I always recommend making sure you’re completely covered when selling online.

Plus there are a lot of specific requirements you have to cover to not be responsible as the retailer (the product can’t have any of your own branding for example.) so most of the time you will be liable anyway.

Once again, most insurers offer cover between £1m and £5m for product liability.

One important thing to note when looking for product liability insurance is that it is usually sold under public liability – so they come as a ‘package’ and you can’t get one without the other.

That’s fine and all it means is that you’re covered both ways.

Stock Cover

As the name suggests, stock cover is insurance for the stock you keep before selling it (whether that’s in a warehouse or your own home). Stock insurance will cover you for the cost price (not selling price) of your stock should it be damaged, destroyed or stolen.

Again this is a very important part of business insurance for an online seller, as loss of stock is something that can bankrupt your business, if you’re not properly insured.

The last types of insurance I want to cover are legal requirements for any business (whether offline or online).

Employers’ Liability Insurance

If your business has any employees (including part-time/casual staff, temporary/seasonal workers, students etc), then you are legally required to have Employers’ Liability Insurance. This covers you for the cost of legal fees and any compensation if your employee becomes ill or is injured as a result of the work they carry out.

The legal minimum amount of cover is £5m.

Fines for not having appropriate insurance can be up to £2,500 a day so make sure this is all in order if your business has any employees!

Third Party Motor Insurance

Lastly, if your business uses motor vehicles, then you are legally required to have insurance that covers at least £1m for property claims and an unlimited amount for personal injury.

So that’s it! Those are the main types of business insurance (specifically for online sellers) plus the insurance you’re required by law to have if your business falls under certain conditions.

But where exactly do you find these ‘specialist’ types of insurance? That’s a good question as oddly enough most ‘traditional’ insurers don’t cover eBay or eCommerce businesses, despite the fact that online sales are expected to reach £45 billion pounds and more than 13% of total retail sales in 2014.

The best way to get business insurance as an online seller is to contact insurance brokers either online or through the yellow pages. Just look for companies that mention business or commercial insurance and then call them up to ask about cover for your home business.

Please remember – always give EXACT and accurate details so that you’re properly covered and ensure you fully understand the terms you have to adhere to.

For example:

• Your product liability insurance doesn’t cover you for any products sold to the USA.

OR

• Your stock cover doesn’t cover you for any stock stored in a room with a window.

You need to be completely aware of any exclusions or terms in your policy to make sure you have the right cover for your business.

And of course, shop around and speak to a few different brokers – you don’t want to just go for the cheapest price but it’s always best to speak to as many insurance providers as possible to compare the different products they offer, their policies, excess and of course premium.

So that’s it from me in this guide, but if you have any questions feel free to post them in the comments box below and I’ll do my best to help. But please bear in mind as this is a legal issue I will not always be able to offer advice so if your situation is very specific or you need exact information, it may be best to speak to a professional who will have the expertise to advise you further.

Until next time!

Thanks,
Andrew