A subcontractor falls from height on your site and sustains a serious spinal injury. His claim lands on your desk. You reach for your public liability policy. Your insurer declines the claim.
That single misunderstanding, one that occurs regularly across the UK construction industry, can leave a business facing six-figure damages with no cover in place. Public liability and employers’ liability are distinct policies that protect against entirely different risks. Treating them as interchangeable, or assuming one fills the gap left by the absence of the other, is one of the most consequential insurance mistakes a contractor can make.
This article sets out exactly what each policy covers, who it protects, when it responds, and why most construction businesses need both. If you are a builder, contractor, developer, or subcontractor working in the UK, this is the baseline you need to understand.
What Public Liability Insurance Covers
Public liability insurance covers claims brought against you by third parties. A third party is anyone outside your workforce: a member of the public, a client, a neighbouring property owner, a site visitor, or a local authority inspector. If one of these people suffers bodily injury or property damage as a result of your business activities, your public liability policy responds.
In construction, the scenarios are plentiful.
- A pedestrian is struck by debris falling from scaffolding
- A client’s existing structure is damaged during groundworks
- Your team accidentally drills through a gas pipe, causing damage to a neighbouring property
- An unguarded excavation adjacent to the site boundary results in a member of the public falling
The policy covers legal defence costs as well as any damages awarded. Standard limits in the construction industry are £1m, £2m, £5m, and £10m. Many main contractors now stipulate a minimum of £5m as a condition of engagement, up from the £2m that was standard for much of the last decade.
Public liability is not a legal requirement in the way that employers’ liability is. In practice, however, it is required by virtually every client contract, framework agreement, and supply chain appointment. Without it, you cannot obtain or retain construction work.
What Employers’ Liability Insurance Covers
Employers’ liability insurance covers claims brought against you by your own workers. If a worker suffers injury or illness in the course of their work for you and holds you responsible, your employers’ liability policy responds.
Unlike public liability, employers’ liability is a legal obligation. The Employers’ Liability (Compulsory Insurance) Act 1969 requires every business that employs staff to hold a minimum of £5 million of cover. Most policies in the market provide £10 million as standard. Failure to maintain this cover carries a fine of up to £2,500 for every day the business operates without it.
In construction, claims most commonly arise from:
- Falls from height
- Struck-by incidents involving plant, vehicles, or materials
- Musculoskeletal injuries from manual handling
- Equipment-related accidents
- Work-related illness, including occupational lung disease and hearing loss
There is also a growing volume of claims relating to stress and psychological injury. Construction has among the highest rates of poor mental health of any UK industry, and civil claims following work-related psychological harm are increasing year on year.
When an injured worker pursues a claim, your contractors insurance needs to include employers’ liability cover to meet those costs, including legal defence and any damages awarded.
Who Counts as an Employee for Employers’ Liability Purposes?
This is where many contractors make costly mistakes. The assumption that only PAYE staff require employers’ liability cover is incorrect.
Under the Employers’ Liability (Compulsory Insurance) Act, the definition of “employee” is broader than it appears on a payslip. The key test is direction and control: if you determine how, where, and when a person works, they are likely to be treated as a worker for the purposes of a claim, regardless of how they are engaged or how they invoice you.
This matters particularly for the following categories.
Labour-only subcontractors (LOSCs) carry out labour under your direct supervision using your materials and equipment. In most cases, they fall within employers’ liability scope. If a LOSC working under your control is injured and brings a claim, your employers’ liability policy is the relevant protection.
Bona-fide subcontractors (BFSCs) are genuinely independent businesses with their own plant, equipment, insurance, and operating methods. They generally carry their own liability cover and sit outside your employers’ liability obligations, though this depends on the specifics of the arrangement.
Apprentices and trainees are covered under employers’ liability. Agency and temporary workers are covered in many cases, depending on contractual terms.
The practical implication: if your site operates with a crew of LOSCs, you almost certainly need employers’ liability cover, even if no one on your payroll is a direct PAYE employee.
Why Most Construction Businesses Need Both
For any contractor running a live site, both covers are effectively non-negotiable.
Employers’ liability is a legal requirement from the moment you have someone working under your direction and control. There is no threshold of hours, no grace period for new engagements, and no exemption because a worker holds self-employed status. The test is control, not payroll classification.
Public liability, while not mandated by statute, is required commercially. Contractors combined insurance packages typically include both covers alongside contract works protection, which is the most practical way for most construction businesses to hold the correct baseline.
The distinction between the two policies comes down to who is bringing the claim. If the claimant is outside your workforce, such as a member of the public, a client, or a neighbouring owner, it is a public liability matter. If the claimant is a worker under your direction and control, it is an employers’ liability matter. Neither policy covers the other’s ground.
Consider two incidents on the same scaffold on the same afternoon. A LOSC loses his footing and injures his shoulder while working under your supervision. Moments later, the same firm’s operative knocks a loose fitting over the hoarding, which strikes a pedestrian below. The first claim falls to employers’ liability. The second falls to public liability. If only one policy were in place, one of those claims would be uninsured.
There is also an important interaction worth understanding. If a subcontractor you have engaged is injured on your site and their own insurer declines the claim, or they carry no cover at all, you may face a claim as the principal. Contingent liability provisions within your own policy can protect against this, but only where your cover is correctly structured from the outset.
The Indemnity to Principals Clause
If you work as a subcontractor under a main contractor or developer, you will regularly encounter a requirement for an indemnity to principals clause within your public liability policy.
This extension means that if you cause damage or injury and the main contractor is brought into the claim as a result of your actions, your policy will also cover their exposure. Without it, the main contractor bears a liability they would expect your insurance to address. Many will refuse to appoint a subcontractor until it is confirmed.
It is not a separate product, but an endorsement on your existing public liability policy. Any subcontractor working under formal contracts should check their policy wording and confirm this extension is included before accepting an appointment.
Mistakes That Leave Contractors Exposed
These are the most common coverage gaps seen in construction liability arrangements, and each has a direct consequence.
Assuming that using subcontractors removes any employers’ liability obligation is incorrect where LOSCs are involved. If you direct their work, you carry the exposure.
Believing public liability covers all on-site incidents, including worker injuries, leads directly to declined claims. A claim from a worker goes to employers’ liability. Reaching for the wrong policy costs time, creates coverage gaps, and can result in a declined claim at the worst possible moment.
Holding public liability limits that no longer satisfy your contracts is a live issue across the industry. Many policies still sit at £2m. Many contracts and frameworks now require £5m. The gap between those two figures represents uninsured exposure on every project you take on.
Not confirming whether an indemnity to principals clause is included before accepting a subcontract appointment is a detail that causes real problems. Discovering it is absent mid-project, when a claim has already been notified, is too late to remedy.
Failing to review cover when the workforce composition changes significantly, for example when moving from direct employment to a predominantly subcontracted model, is a common gap. The cover that was correct twelve months ago may no longer reflect the actual risk profile of the business.
Which Policy Responds: Four Scenarios
The following scenarios illustrate how the two policies operate in practice.
A LOSC engaged by a roofing contractor falls through fragile rooflight material and sustains serious injuries while working under the contractor’s direct supervision. Employers’ liability responds. Without it, the contractor faces the damages personally.
A passerby walking adjacent to a demolition site is struck by falling masonry. Public liability responds. The policy covers legal costs and any award made to the injured party.
An apprentice working for a groundworking firm develops a repetitive strain injury from prolonged use of a breaker over several months. Employers’ liability responds, covering both the defence and any compensation awarded.
During a basement conversion, a contractor’s team breaches a neighbour’s drainage system, causing flooding and significant property damage. Public liability responds. For a broader understanding of how these policies sit within a full construction insurance programme, the contractors all risks page covers the wider package.
Get the Right Cover in Place
Public liability and employers’ liability serve different purposes, protect against different claimants, and respond to different events. The financial and legal consequences of misunderstanding the boundary between them are significant.
For most construction businesses, the correct starting point is a contractors combined policy that includes both covers, with limits that reflect current contractual requirements. Check whether your public liability limit meets what your clients and principal contractors now require. Confirm whether your workforce includes LOSCs who bring employers’ liability obligations with them. Verify that an indemnity to principals clause is in place if you work as a subcontractor.
If your current liability insurance does not clearly address all three of those points, there is a gap that needs closing. Contact Construction Insure on 020 3958 6868 for a direct conversation about your cover.