If you’ve been told that you need public liability insurance, you’re probably wondering whether it’s compulsory or not.
The answer will depend on your business type, your licensing requirements, and the contracts that you are entering into.
Is public liability insurance required by law?
There is no specific law in Australia that states a business must have public liability insurance.
However, many Australian states have licensing rules for certain trades that require you to have public liability insurance in place.
Electricians and plumbers are the two trades most likely to have licensing requirements around public liability insurance.
For example, if you’re an electrician in Queensland you won’t be able to obtain or renew your electrical contractor’s licence without having public liability insurance in place.
Whilst the requirement for insurance is not a law as such, you would be breaking the law by operating an electrical business without a licence, and you can’t get the licence without the insurance!
When is public liability insurance compulsory?
If public liability isn’t required by law, when and why is it compulsory?
There are a few different reasons why public liability may be mandatory for your business:
- For your contractor / building licence
- Required under a contract
- Required for leased premises
- When using subcontractors
- As part of an insurance package
We’ll now take a look at each of these in more detail.
Public liability insurance required for a trade licence
As mentioned above, there are many examples where public liability insurance will be a compulsory requirement for obtaining a trade or building licence.
For many trade licences, such as electricians and plumbers, you will need to provide evidence of your public liability insurance when applying for or renewing your contractor’s licence.
Some states go even further, requiring specific options be added to the mandatory public liability insurance.
Electricians in Queensland must have an option for consumer protection insurance included in their public liability policy.
Plumbers in Victoria must have plumbers warranty included in their public liability insurance.
If you have a policy which doesn’t include those specific options for your state and trade, your licence application or renewal will be rejected.
To check if public liability insurance is mandatory for your specific trade and state, check with your local state licensing authority.
Public liability insurance required by a contract
Many contracts in the building industry will include a requirement for each contractor or subcontractor to hold public liability insurance.
The contract will typically state a minimum amount for the insurance.
For residential works this could be as low as $5 million, which is the minimum amount of cover available from Australian insurers.
For commercial and industrial works, you may find that the minimum requirement is $10 million or even $20 million.
This is especially true for works that have a larger exposure to the general public, such as shopping centres and infrastructure.
In some cases, you may be required to hold a high limit than $20 million. This would typically be for serious infrastructure projects with large potential liabilities.
Limits of $20 million are not generally available “off the shelf” but can be arranged through competent business insurance brokers (such as Trade Risk).
When signing any contracts with a public liability requirement, you’ll generally need to provide a certificate of currency confirming the insurance coverage before undertaking any works.
Insurance requirements on a lease
If you’re operating your business from a leased premises, such as a workshop or shopfront, you will generally find that public liability insurance is a requirement on the lease.
In this case the lease will stipulate that a minimum amount of public liability will need to be in place at the time of signing the lease.
You don’t need a specific policy for the premises. Instead, the public liability insurance for your business will cover the lease requirements, provided that the address of the premises is listed on the policy.
Along with public liability, most leases will also stipulate that glass cover is included in the policy.
Public liability requirements for subcontractors
If you are subcontracting work out to others, you may need to consider making public liability insurance mandatory for those subcontractors.
Whilst you might think that the insurance requirements for your subcontractors are nothing to do with you, this is often not the case.
Many public liability insurance policies will require that you ensure any subcontractors you are using hold the same level of public liability insurance as you do.
Why is this? Often when something does go wrong on a worksite, the lawyers will bundle everyone into the legal action.
The old saying “throw sh** at the wall and see what sticks” is appropriate in this case!
In the end it may be found that multiple parties were responsible for the incident. For example it might be found that you were 30% responsible and your subcontractor was 70% responsible.
Your insurance company will want to know that your subcontractors have their own policy in place to cover their 70% of the claim.
If your subcontractor didn’t have insurance in place, the lawyers on the other side will likely try to make you responsible for a larger part of the claim, since they know you have insurance and are more likely to be able to pay than the other party without insurance.
Public liability required as part of an insurance package
When it comes to business insurance, you will often find that public liability is a mandatory component.
For example if you want tool insurance, most insurers will only offer it as part of a package which include public liability.
The same is true for many other forms of business insurance, which aren’t available on their own, and must be bundled with public liability.
Public liability insurance is typically the cornerstone of any business insurance package, so it’s no great surprise that the insurance companies want to hold your public liability for adding any extras.
What is the required amount of public liability insurance?
It’s one thing to know whether or not the insurance is compulsory, but you also need to know what amount of cover is required.
The minimum amount of cover available in Australia is $5 million. This is typically the required amount under various trade and building licenses.
That doesn’t necessarily mean that $5 million is the appropriate amount. It is simply a minimum requirement.
You might find that your licence has a requirement of $5 million, your workshop lease has a requirement of $10 million, and one of your contracts has a requirement of $20 million!
In this case you would simply need one policy that covers $20 million. You don’t need three separate policies for different amounts.
If you had a licence requirement of $5 million and a contractual requirement of $5 million, that doesn’t mean you need $10 million in total. A single $5 million policy will cover both requirements.
In most cases, if you’re being told that you need the insurance, you’ll also be told an amount. If no minimum amount is stipulated, it’s generally safe to assume that $5 million is the requirement.
What insurance types are compulsory?
In terms of the law, the two most common forms of mandatory insurance are workers compensation and third-party personal injury insurance for motor vehicles.
Whilst public liability insurance is not made compulsory under any law, it certainly is compulsory for certain trade licences and under certain contracts.
How to ensure you are compliant with the requirements
There are five main triggers for public liability insurance being made compulsory, and checking each of them is relatively straightforward.
Licensing requirements:
Check with your state licensing authority.
Contractual requirements:
Read through any contracts you have in place.
Lease requirements:
Read through your lease.
Using subcontractors:
You can check your existing public liability policy to check if it requires your subcontracts to have their own cover, but best practice is to ensure your subbies have their own cover regardless.
Insurance package:
Your insurance broker will cover this off for you.
Should I have public liability insurance?
Regardless of whether or not public liability insurance is compulsory for your licence, your contracts or otherwise, having cover in place is just good business practice.
As a business owner there are so many risks that you face, and one of the biggest is the risk that your business causes property damage or personal injury to a third party.
By having public liability insurance in place you can take away this huge financial risk, for what is generally a very reasonable premium.
If you’d like a quote on public liability or any other form of business insurance, please call our team of brokers on 1800 808 800 or click here to request a quote online.
