When owning a motor trade business, it’s advised that you have public liability insurance. Alongside liability, you may also need professional indemnity insurance. Both cover compensation claims but the type of areas they include can be very different.
Which insurance you need will depend on the type of motor trade business you run – you may even need both to be fully covered.
Here are the key facts you need to know to clarify the difference between public liability insurance and professional indemnity insurance.
What does Liability Insurance Cover?
Public liability insurance covers compensation claims if you’re sued by a member of the public for damage to their property or injury whilst at your business premises or when you’re working in their home, office or business property. For example, if you neglect to put out a sign and someone slips over on a freshly mopped floor in your showroom and breaks an arm or you accidentally knock a cup of coffee over their laptop and it needs repairing or replacing.
Liability insurance can cover your business for:
• Injury compensation claims
• Property damage compensation claims
• Legal fees associated with any compensation claims
Motor trade liability insurance is specifically designed to meet the needs of all aspects of your business and can either be taken out as a standalone policy or part of your motor trade or road risks package.
In addition to public liability, there are two other main areas recommended if you work within the motor trade: employers’ liability insurance and product liability insurance (also known as sales and service indemnity insurance).
Employer’s liability insurance is the only liability insurance that is legally required if you have full- or part-time employees, and you need to have £5 million of cover. This is to protect you or your employees if one of them were to have an accident at work. If an accident occurs without enough cover, you could be prosecuted and fined.
Product liability insurance protects those in the motor trade when carrying out the following transactions:
• The sale or supply of new or used vehicles, work carried out prior to sale or supply and the fitting of additional accessories to the vehicle.
• The sale or supply of other motor products
• The maintenance, testing, servicing, repair, valeting, alteration or MOT inspections of motor vehicles
Product liability insurance protects you if an item being worked on is accidentally damaged, such as scratching the paintwork or getting oil on the leather upholstery of your customer’s vehicle.
It also covers you against claims that may arise from faulty parts or defective workmanship. Despite fully inspecting a vehicle before release to a client, there is always the risk that something could go wrong. If anything were to happen while your customer was out on the road, such as brakes failing or a loose tyre, it could lead to serious damage to the vehicle, the driver as well as third parties.
If you have liability insurance, you will be covered for the repair or replacement costs as well as legal expenses if the case were to go to court. If you are in the wrong, your insurer pays any damages, awards, restoration costs or compensation you’re liable for – up to your policy’s level of cover.
What Does Professional Indemnity Insurance Cover?
Professional indemnity insurance can cover your business for compensation claims made by a customer if you have made a mistake in your work. For many businesses in the motoring trade, this may already be covered under product liability.
Where professional indemnity (PI) is an important insurance in the motor trade is if you provide a professional service that also offers advice. Even if you are confident in the service and advice you are providing, you could still be vulnerable to having a claim made against you if the information you give leads to financial loss.
One area of the motor trade that may benefit from PI insurance is a motor dealership. When selling cars, a customer is reliant on you having a certain amount of specialist knowledge. If you were to give the wrong advice, you could be held to account for any monetary losses that may be incurred as a result of your actions.
A PI policy covers the cost of defending you – whether the claim is valid or not. If you must pay to correct a mistake or cover legal costs as a result of your professional negligence, then a PI policy would help you cover these costs up to your policy’s level of cover.