At Kingsbridge, we regularly get asked what the difference is between public liability insurance and professional indemnity insurance. A lot of people think they’re the same thing and wonder why both are included in our combined contractor insurance policy. The fact is, they’re different things and, as a contractor, you will more than likely need both. We’ve written this article to clearly lay out what the differences are.
Public liability insurance
Public liability insurance is necessary if, as a contractor, you’re responsible for any third parties or third party’s property that could be adversely affected by your actions.
So, for instance, you’re an IT contractor working at your client’s office. While there, you send your morning cup of tea flying and it goes all over one of your client’s computers and damages it beyond repair. The client could then sue you for the cost of a new computer but your public liability insurance would cover you so you don’t have to fork out yourself (although we’d advise investing in a travel mug with a sturdy lid from now on!).
Public liability insurance operates on a ‘losses occurring’ basis. This means that you’re covered for any claims made for incidences occurring during the period of cover, even if your policy has since expired.
It’s wise to have public liability insurance as a contractor since many new contracts will stipulate that you need to have it. But, even if this isn’t the case, it can help cover you for damages that could be claimed against you — as well as any associated legal fees — so it’s worth having for your own peace of mind.
Professional indemnity insurance
Professional indemnity insurance UK cover is designed to protect you, as a contractor, should you be sued for negligence. This could be anything from making a mistake to giving bad advice, or even defamation, libel, breach of intellectual property, loss of documents or loss of data. In short, if you make a mistake due to your own negligence, or you are deemed responsible for a mistake happening, professional indemnity insurance covers the compensation you need to pay as well as your legal fees.
For example, you’re project managing the implementation of your client’s new business system and you make incorrect assumptions — without research — regarding its compatibility with existing systems. The implementation causes a major crash, costing your client time and money while their systems are offline. You admit liability as this is down to your own negligence, however, your professional indemnity insurance will cover you for the compensation you have to pay out, as well as any legal fees incurred.
Unlike public liability cover, professional indemnity insurance operates on a ‘claims made’ basis. This means that you are only covered for claims made against you during the period of cover, regardless of when the contract was carried out.
It’s therefore recommended that you take out professional indemnity insurance and maintain your policy even when you’re no longer working on a contract as you will then still be covered should a claim be made against you after the contract period has ended — giving you reassurance that you’ll never have to cough up tens or hundreds of thousands of pounds in compensation for a current or former client.
Professional indemnity insurance also acts as a key indicator of IR35 to HMRC – seen by them as a confirmation that you are genuinely self-employed.
So, there you have it. While at first glance the two types of cover may seem similar, they are actually very different and you can see why we advise having both. If you’d like to chat to us further about your contractor insurance needs, call our friendly team on 01242 808740 or take a look at our website and we can help make sure you’re covered. You can also get in touch over on Facebook, LinkedIn, and Twitter.