Public Liability Insurance: What It Covers, What It Doesn't and How Much You Need

Public liability insurance covers a business’s legal liability when a third party, such as a customer, visitor or contractor, suffers injury or property damage because of its activities. Most Australian businesses know they need some form of this cover. Fewer know whether the policy they hold is actually doing its job. This guide answers the questions that matter before a claim arrives.

Do I need public liability insurance?

There is no blanket rule covering every business in Australia. Whether it makes sense depends on what you do, who you work with and what your day-to-day activities involve.

Businesses that commonly hold public liability insurance include:

• Tradies and contractors working on or in client properties
• Retail and hospitality businesses with regular foot traffic
• Event organisers and anyone using public or hired venues
• Professional services businesses that meet clients in person or visit sites
• Product manufacturers and importers
• Anyone operating in or around public spaces

The financial exposure from a single claim, covering compensation, legal costs and medical expenses, can run into hundreds of thousands of dollars or more regardless of whether the claim is ultimately successful.

What does public liability insurance cover?

Public liability insurance covers your legal liability when a third party suffers injury or property damage because of your business activities.¹ “Third party” means anyone outside your business: customers, members of the public, clients, visitors and contractors who are not your employees.

When a covered claim is made, the policy can pay:

• Compensation owed to the injured or affected party
• Legal and defence costs, even if the claim is ultimately unsuccessful
• Medical costs related to a covered injury
• Damage to a third party’s property caused by your business activities

Common examples: a customer slips on a wet floor in your shop, a tradesperson accidentally damages a client’s flooring during a job or a product you supplied causes injury after it leaves your hands.

What does public liability insurance not cover?

Knowing the exclusions is just as important as knowing what is covered. Public liability does not respond to:

• Injuries to your own employees. That is what workers compensation is for. If a staff member is hurt at work, public liability is the wrong policy.
• Professional advice and errors. If a client suffers a financial loss because of advice you gave or a mistake in your professional service, that falls under professional indemnity insurance, not public liability.
• Damage to your own property, tools or stock. Public liability only covers loss to third parties. Your own assets are a separate insurance matter.
• Claims above your policy limit. If a judgment or settlement exceeds your cover limit, the gap is your responsibility.
• Deliberate acts. Cover does not apply where damage or injury was intentional.

A claim being made against you does not mean it will be paid. The above exclusions are where many business owners discover their policy does not work the way they assumed.

Which cover responds:

What happened	Which cover responds
Injury to a member of the public	Public liability
Injury to an employee	Workers compensation
Financial loss from professional advice	Professional indemnity
Damage to the business’s own property	A separate policy — not public liability

Does public liability insurance cover faulty workmanship?

Partly, and the distinction matters. A public liability policy can respond if your faulty work causes injury or damage to a third party. It will not cover the cost of fixing or redoing the work itself.

A practical example: a plumber incorrectly installs a fitting and it fails, flooding a client’s kitchen. Public liability may cover the damage to the kitchen. It will not cover the cost of replacing the fitting or redoing the original job.

If your business carries meaningful exposure to defect claims, it is worth discussing this gap with a broker. Some policies allow endorsements that extend cover for rectification costs, and the scope of what is included varies significantly between insurers.

How much public liability insurance do I need?

The most common limits are $5 million, $10 million and $20 million. Some businesses and contracts require $50 million or more, particularly large infrastructure projects, events with significant public attendance or contracts with major institutions.²

Several factors inform where your limit should sit:

• What your contracts specify. Commercial leases, government tenders, head contractor agreements and venue hire contracts often state a minimum limit. A policy that falls short of what a contract requires creates a practical problem at the point of engagement.
• The nature of your work and the assets involved. Work on or near high-value property, infrastructure or equipment increases the potential size of a third-party claim.
• The industries and clients you work with. Different sectors carry different norms and contractual expectations around minimum limits.
• The potential cost of a significant claim. Public liability claims can involve medical costs, legal fees and compensation running well into the millions.

The most reliable starting point is checking what your existing and prospective contracts actually require. A common gap is holding a $10 million policy and then signing a contract that specifies $20 million. A policy and a contract are separate documents with separate requirements.

Is public liability insurance a legal requirement in Australia?

There is no single rule requiring all businesses to hold it. Whether it applies to your situation depends on the nature of your work and who you work with.

Many businesses find it is expected by the clients, venues and organisations they deal with. Others hold it because the nature of their work involves regular contact with the public and the potential financial exposure from a claim is significant.

Whether it makes sense for your situation is a decision based on your own circumstances. A broker can help you understand your exposure and what level of cover would be appropriate.

Key Takeaways

• Public liability covers your legal liability to third parties for injury or property damage arising from your business activities
• It does not cover your own employees, professional advice errors, damage to your own assets or claims above your policy limit
• Faulty workmanship may be partially covered if it causes third-party damage, but rectifying the work itself is excluded
• The right limit depends on the nature of your work, the clients you work with and the size of potential claims in your context
• There is no blanket rule that applies to every business. Whether it makes sense depends on what your work involves and who you work with

If you want to check whether your current policy limit and business description still match what you actually do, Cipher can review it. Get in touch.

The information in this article is general in nature and does not constitute legal, financial or insurance advice. Please speak with a qualified adviser about your specific circumstances.

Footnotes

1. Types of business insurance, business.gov.au ↩

2. National Claims and Policies Database statistics, APRA ↩