What Is Commercial Public Liability Insurance?

Commercial public liability insurance protects businesses against financial losses stemming from lawsuits originated by members of the public. Laws in many countries enable people to take legal action against businesses as a result of injuries that were sustained while on business property. In other instances, people can sue companies when employees of the business cause damage to personal property. When lawsuits involving companies that are covered by commercial public liability insurance protection result in damages payouts, those payouts are made by the insurance company rather than the business.

Insurance companies fund commercial public liability insurance coverage by charging annual premiums that covered businesses must pay. Actuaries who work for the insurance company review data relating to past accidents and lawsuits to determine the likelihood of a particular company being involved in an incident that results in a lawsuit. Premiums are priced to raise enough funds to cover likely payouts and also generate profits for the insurance company. Businesses with poor safety track records are viewed as high-risk businesses and have to pay larger premiums than firms that are viewed as low risk.

A commercial public liability insurance contract includes certain exclusions. The insurance company generally only has to make a payout in situations involving genuine accidents. Insurance companies are not liable when employees of a business act unlawfully. Under a public liability contract, the insurer also does not have to provide coverage to protect a business from lawsuits originated by its own employees. These insurance policies only protect businesses against lawsuits filed by third parties who have no direct link with the insured business.

Every commercial public liability insurance contract has a maximum coverage level. In some countries, businesses in certain industries are required to buy insurance protection that is equal to the maximum compensation payout a company can be required to make. Companies in many industries are required to buy insurance coverage that covers the company to some extent, but companies are responsible for paying any compensation claims beyond the insurance coverage level out of separate company funds.

Liability insurance often costs less than other kinds of insurance coverage, such as property insurance. In the absence of this insurance coverage, many businesses file bankruptcy as a result of lawsuits. Companies that are not required to buy liability insurance by law can decide whether it makes financial sense to drop the coverage and reduce company overheads or to purchase the coverage and avoid future financial peril. Businesses can typically save money by purchasing liability insurance from the same insurer that provides other types of coverage. Most insurers offer discounts to existing customers that purchase additional policies.