Public Liability vs Professional Indemnity: What's the Difference?

Public Liability vs Professional Indemnity: What's the Difference?

If you run a business in Australia, you've probably heard of Public Liability Insurance and Professional Indemnity Insurance.

But what's the difference?

Put simply:

Public Liability is generally about injury to other people or damage to their property arising from your business activities.

Professional Indemnity is generally about claims arising from your professional advice, services, errors or omissions.

While both are forms of liability insurance, they protect your business against very different types of risks.

For many businesses, having one does not mean you have the protection provided by the other.

Public Liability vs Professional Indemnity at a glance

The exact cover provided by any policy depends on its wording, including its terms, conditions, exclusions, limits and excesses. Australian Government guidance identifies both Public Liability and Professional Indemnity as important types of business insurance, with requirements varying depending on the business and profession.

What is Public Liability Insurance?

Public Liability Insurance is designed to help protect a business against certain claims where the business is legally liable for injury to another person or damage to their property arising from the business's activities.

For example:

A customer slips in your workplace

A customer visits your premises, slips on a wet floor and suffers an injury.

If your business is legally liable, a Public Liability policy may respond to the claim, subject to the policy terms.

You damage a client's property

Imagine you're an electrician carrying out work at a client's premises and accidentally damage an expensive piece of equipment.

If you're legally liable for the damage, your Public Liability policy may provide cover, subject to the policy wording.

Your business activity causes property damage

A tradesperson, contractor or other business may accidentally cause damage while carrying out work.

Public Liability can provide protection against certain third-party property damage claims.

What is Professional Indemnity Insurance?

Professional Indemnity Insurance is designed for businesses that provide professional advice, expertise or services.

It can help protect a business against certain claims alleging that professional advice or services caused a client financial loss.

For example:

An incorrect professional recommendation

A consultant provides advice to a client.

The client follows the advice and later claims that the advice caused them financial loss.

A Professional Indemnity policy may respond to the claim, depending on the circumstances and policy wording.

An error or omission

A professional business accidentally leaves important information out of a report.

The client subsequently suffers a financial loss and alleges that the error caused the loss.

Professional Indemnity may provide cover for an eligible claim, including associated legal costs where covered by the policy.

Failure to meet professional obligations

A client alleges that a professional service did not meet the agreed requirements and that this caused them financial loss.

Again, whether the policy responds depends on the circumstances and the specific policy wording.

Can a business need both?

Yes.

In fact, many businesses may need to consider both types of cover.

Consider a building consultant who visits construction sites and provides professional advice.

There are two very different risks:

Risk 1: The consultant accidentally damages property while visiting a client's site.

→ Potential Public Liability exposure.

Risk 2: The consultant makes an error in their professional advice and the client suffers financial loss.

→ Potential Professional Indemnity exposure.

Having one policy does not automatically mean the other exposure is covered.

This is why it's important to look at the actual activities your business performs rather than simply buying a policy because another business in your industry has one.

Which businesses might need Public Liability?

Public Liability can be relevant to a wide range of Australian businesses.

For example:

• Builders

• Electricians

• Plumbers

• Carpenters

• Landscapers

• Cleaners

• Mechanics

• Retailers

• Hospitality businesses

• Manufacturers

• Events businesses

• Contractors

• Businesses operating from commercial premises

• Businesses working at customer premises

Some businesses may also be required to hold Public Liability Insurance by legislation, industry requirements, landlords, clients or contracts. Requirements vary depending on the occupation and jurisdiction.

Which businesses might need Professional Indemnity?

Professional Indemnity can be particularly relevant to businesses where clients rely on their knowledge, expertise, advice or professional services.

Examples include:

• Accountants

• Bookkeepers

• Consultants

• Engineers

• Architects

• Designers

• IT consultants

• Marketing consultants

• Business advisers

• Surveyors

• Financial advisers

• Other professional service providers

For some professions, Professional Indemnity Insurance may be mandatory or required as part of professional registration or licensing arrangements.

What about tradespeople?

One common misconception is that Professional Indemnity is only for office-based professionals.

That isn't necessarily the case.

Some trades and technical businesses provide advice, design, specifications, project management or other professional services in addition to physical work.

For example, an electrical contractor may:

• Supply and install electrical equipment

• Design part of an electrical system

• Provide technical advice

• Prepare specifications

• Manage a project

The insurance needs of that business could therefore be different from those of a business that only performs physical work.

This is why it's important to explain everything your business does when arranging insurance.

What if my client requires both?

It's common for commercial contracts to specify insurance requirements.

A client may require a contractor to carry:

• Public Liability Insurance

• Professional Indemnity Insurance

• Workers Compensation

• Commercial Motor Insurance

• Other specific covers or limits

A contract may also contain indemnity clauses that transfer certain risks from one party to another.

Don't simply assume that your existing policy meets the contract requirements.

Check:

• The required limit of liability

• The type of insurance required

• The territorial or jurisdictional requirements

• Any required endorsements

• Who needs to be noted on the policy

• The contract's indemnity obligations

• Any specific wording requested by the client

If you're unsure, speak with your insurance broker before signing the contract.

What Public Liability does NOT automatically cover

Public Liability is not a "cover everything" policy.

Depending on the policy, it generally isn't designed to automatically cover:

• Professional advice and errors

• Financial losses arising solely from professional services

• Your own property

• Your own vehicle

• Employee injuries covered by workers compensation

• Cyber incidents

• Every contractual liability

There may be circumstances where a particular policy provides an extension or another policy responds, but you should never assume that a particular risk is covered without checking the wording.

What Professional Indemnity does NOT automatically cover

Professional Indemnity also has limitations.

It isn't designed to automatically cover:

• Physical damage to third-party property

• Every type of business liability

• Your own business property

• Motor vehicle accidents

• Employee injuries

• Every contractual obligation

• Deliberate or fraudulent acts

The exact position depends on the policy and circumstances.

This is why businesses often need a combination of insurance policies, rather than trying to find one policy that covers everything.

Public Liability vs Professional Indemnity: Two real-world examples

Example 1 – Electrician

An electrician is installing lighting at a customer's premises.

During the installation, the electrician accidentally damages an expensive wall and flooring.

Potential exposure: Property damage

Insurance to consider: Public Liability

Now imagine the electrician provides technical design advice for a commercial project and an error in that advice causes the client financial loss.

Potential exposure: Professional advice

Insurance to consider: Professional Indemnity

The same business can therefore have both types of exposure.

Example 2 – Consultant

A business consultant provides strategic advice to a client.

The client claims that the advice was incorrect and resulted in a substantial financial loss.

Potential exposure: Professional services

Insurance to consider: Professional Indemnity

Now imagine the consultant is visiting the client's premises and accidentally knocks over expensive equipment.

Potential exposure: Property damage

Insurance to consider: Public Liability

Again, two completely different risks.

Don't forget about Professional Indemnity claims after the work is completed

Professional Indemnity is particularly important because a claim may not arise immediately after you provide the service.

A client may only discover an alleged error months or even years later.

This is one reason why businesses with Professional Indemnity Insurance need to understand how their policy operates, including the policy's claims-made provisions, notification requirements and any retroactive date.

If you're changing insurers or considering cancelling a Professional Indemnity policy, it's important to discuss the implications with your broker before making the change.

Do you need Public Liability, Professional Indemnity — or both?

Ask yourself:

Do you interact with customers or members of the public?

Public Liability may be relevant.

Could your business activities cause damage to someone else's property?

Public Liability may be relevant.

Do you provide professional advice or expertise?

Professional Indemnity may be relevant.

Could an error or omission in your professional service cause a client financial loss?

Professional Indemnity may be relevant.

Does your contract require specific insurance?

You may need one or both — depending on the contract.

Are you unsure?

That's where an insurance broker can help you identify the key exposures and consider appropriate insurance options.

Get the right insurance for your business

Public Liability and Professional Indemnity protect against different types of risks.

Public Liability generally focuses on third-party injury and property damage arising from your business activities.

Professional Indemnity generally focuses on claims arising from professional advice, services, errors or omissions.

For some businesses, one may be more important than the other. For many businesses, both may be appropriate.

The right combination depends on your business activities, clients, contracts, industry and individual circumstances.

At Ingenium Insurance Solutions, we help Australian small businesses understand their insurance risks and compare insurance options from insurers.

If you're starting a business, taking on new work, reviewing a contract or simply unsure whether your current insurance is appropriate, talk to us about reviewing your cover.

Ingenium Insurance Solutions
Smart advice. Strong protection.

Important information

This article provides general information only and does not take into account your individual circumstances or insurance needs. Insurance cover is subject to the terms, conditions, limits and exclusions of the relevant policy. Some professions and businesses may have specific legal, regulatory or contractual insurance requirements. You should consider the relevant Product Disclosure Statement (PDS) and seek appropriate professional advice before making an insurance decision.

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Disclaimer

The information on this website is general in nature and does not take into account your personal objectives, financial situation or needs. Before acting on any information, you should consider whether it is appropriate for your circumstances and obtain personal advice. Cover is subject to the terms, conditions and exclusions of the policy wording.

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