Potential Liabilities and Insurance
There are a number of different types of business insurance you should consider carefully regarding potential liabilities: Professional Indemnity, Public Liability, Employer’s Liability and Directors' and Officers' Liability insurance. Even if they are not compulsory they should be thought of as essential for any legitimate business.
Should you fail to put insurance in place either yourself or your company is likely to be liable for any loss, costs (including legal costs), compensation as well as defence of any claims made against you or your company. It can be difficult for any company to find unanticipated extra funds to pay solicitors, defend claims or meet any potential compensation awards. Brookson’s associate, leading insurance brokers Kingsbridge Contractor Insurance, can provide guidance about levels of cover currently acceptable in most industries.
Professional Indemnity Insurance
Professional Indemnity Insurance protects you against claims that are made against your work. While you may never expect to make mistakes or errors whilst contracting for a client, they are within their rights to make a claim against you for negligence up to 6 years from the date that the services were provided. For this reason many clients will insist you have appropriate insurance in place from the outset of an assignment and will probably make this is a contractual requirement.
A standard figure for cover is usually £1 million. Certain clients may request different levels dependent on the services being provided and/or the size of the client.
Professional Indemnity claims can be brought many years after the work giving rise to the claim was performed, and cover will only apply if you have a valid policy in force at the time the claim is brought against you. Professional Indemnity is an essential protection for contractors and one which should be maintained consistently even in periods of little of no work to ensure that past liabilities will be met.
Public Liability Insurance
Public Liability Insurance covers you if, during your business activities, you accidentally injure or damage another person or their property.
Although Public Liability Insurance is discretionary it is worth noting that you have a duty to protect anyone who might be affected by the provision of your services. If someone makes a claim against you and you are found legally liable to them for compensation, your insurers will be able to cover the majority of the claim rather than your company having to find funds to cover the entire liability.
A standard figure for cover is usually £2 million. Certain clients may request different levels dependent on the services being provided and/or the size of the project. Cover provided through our associate Kingsbridge Contractor Insurance offers leading levels of protection with an enhanced limit of £5m.
Employers’ Liability Insurance
Employer’s Liability Insurance is a compulsory insurance policy which all business owners must have if they have any employees, although there are a few exemptions as set out in the Employers’ Liability (Compulsory Insurance) Act 1969. It covers claims being made against you as the company by its personnel and will enable you to meet the cost of compensation for any injuries or illness caused during an assignment.
A limited company employing only its director, who also owns 50% or more of the share capital, is exempt from Employers Liability legislation. If this applies to you then the law does not require you to hold any insurance. In certain shareholder situations or if you employ a direct family member the regulations can still apply making this a legal requirement.
£5 million is the minimum limit required by law although most policies will give £10 million as standard.
Directors' and Officers' Insurance
As director of your limited company, the overriding legal requirement is for you to act honestly, competently and conscientiously in the capacity of a director to ensure that the company's interests are protected. The duties are established through statutes, regulations and case law.
Directors can be held personally liable for any perceived failures in their duties and actions and find themselves faced with unlimited personal liability for any wrongful acts committed, or alleged to have been committed in the execution of their duties. The general public, regulatory bodies, shareholders or creditors are all potentially able to issue claims.
Directors’ and Officers’ Liability insurance, typical cover being £100,000, provides financial protection for you in the event you are sued in conjunction with the performance of your director’s responsibilities and duties relating to the company.