Public liability insurance answers for the harm your business does to people who are not part of it. That is the whole idea, and almost every question about the cover comes back to working out who counts as an outsider and what counts as harm.
Third parties, and who is not one
A third party is somebody outside the business: a customer, a client, a passer by, a neighbour, a visitor. Your employees are not third parties, which is why their injuries fall to employers' liability instead. Nor are you, your business partners or your own property. Drawing that line explains most of the apparent gaps: the policy is not refusing to help, it is a contract about outsiders and everything else has its own cover.
What it pays for
Three things. The damages awarded against you or agreed in settlement. The claimant's legal costs, which they will recover if they win. And your own defence costs, which are incurred whether you win or lose and which for a small business are frequently the larger figure. That last point is why the cover is worth having even for claims you expect to defeat, because the cost of proving you were not at fault is real money you would otherwise pay yourself.
Injury and damage, not disappointment
The trigger is bodily injury to a person or physical damage to property. A client who is merely dissatisfied, out of pocket, late to market or badly advised has not suffered either, so the claim is not a public liability claim. That is the boundary with professional indemnity, and it is the most common misunderstanding in this area. Public liability is about physical consequences; indemnity is about financial ones caused by the work itself.
Four exclusions worth knowing before you buy
Property in your care, custody or control is usually excluded or sublimited, which matters to any trade working inside a client's building. Your own product after it has been sold is products liability rather than public liability. Injury to employees belongs to employers' liability. And deliberate acts are outside every liability policy. None of these is hidden, and each is the reason a trade buys a specific extension rather than assuming a general policy reaches everything.
Questions people ask about what is public liability insurance
What does public liability insurance actually cover?
Injury to a third party or damage to their property caused by your business, together with the damages, their legal costs and your own defence costs.
Does it cover my own tools or stock?
No. It answers for other people's losses. Your own property needs tools, contents or stock cover.
Is a client's financial loss covered?
Not by public liability. A loss with no injury or physical damage behind it is a professional indemnity question.