In short. Public liability is the base section of a liability policy: it responds to damage that the business activity and the premises cause to a third party. What it does not cover is the correct performance of the contracted service or damage to the item being worked on; the Spanish Supreme Court has drawn that line. Everything else —employers', products, completed operations, tenant's legal liability, contractors', cross liability, property in care, custody or control and property being worked upon— consists of extensions bought and sub-limited separately. The cover actually granted is governed by the specific terms of each policy.
The Spanish liability class wrote €2,342 million in premiums in 2025, some 4.7% of the whole non-life market, according to ICEA figures reported by the trade press (2026). Behind that number sits a section present in practically every one of those contracts and which almost nobody has read to the end: public liability.
The description that circulates in the market — "it covers damage caused by the company's activity" — is convenient and incomplete. The Supreme Court has spent years narrowing it, and the narrowing is not an academic nuance: it determines which claims are paid and which are declined. This article draws that boundary.
What does public liability cover?
It covers the obligation to indemnify a third party for damage arising from the conduct of the declared activity and from the use and occupation of the premises from which it is carried on.
Its basis lies in article 73, first paragraph, of the Spanish Insurance Contract Act (Law 50/1980), which defines liability insurance as insurance whereby the insurer covers the risk that there arises, for the insured, an obligation to indemnify a third party for damage caused by an event contemplated in the contract, for the consequences of which the insured is civilly liable at law. The three highlighted expressions do all the work: a third party, an event contemplated in the contract, and liability enforceable at law. Without all three, there is no claim.
In the field of public liability, that liability arises under articles 1902 and 1903 of the Spanish Civil Code: whoever causes damage to another through fault or negligence must make it good, and is also answerable to third parties for the acts of those for whom they must answer, employees included.
In practice, the section is triggered by situations such as a visitor injured on your premises, damage to someone else's property during a loading operation, or damage to neighbouring premises originating in a failure on yours. Alongside the indemnity, the wording usually assumes legal defence costs and court bonds, subject to the specific terms of each policy.
If what you need is the full map of covers — products, professional, D&O, environmental, ten-year structural warranty — we set it out in types of company liability. Here we go straight into the anatomy of a single section.
Where it ends: the boundary set by the Supreme Court
The First Chamber of the Spanish Supreme Court, in judgment 730/2018 of 20 December, fixed the limit that almost no policy wording explains clearly: public liability insurance covers non-contractual liability arising from the business and does not guarantee the correct performance of the service that is the object of the contract, nor damage caused to the item being worked on.
Translated into claims practice, the doctrine has three consequences:
- The policy is not a quality guarantee. If the work is performed badly, the cost of redoing, repairing or replacing it is a matter of contractual performance, not a liability claim. The insurer does not fund your own poor workmanship.
- The item handled is not a third party. The equipment you are repairing, the machinery you are installing or the goods you are handling do not become "third-party damage" merely by being in your hands: they are the very object of your service.
- Consequential damage can be picked up. If repairing a machine starts a fire that damages the rest of the client's building, the item worked upon falls outside and the damage to the rest may be covered, subject to the specific terms of each policy.
That distinction explains why two companies in the same sector, with the same limit and a similar premium, receive opposite answers to an identical claim: one had extended cover to property being worked upon and the other had not.
Do you know whether your policy covers the item your people are working on? Request a technical reading of your wording.
Public liability is the base; everything else is an extension
This is the point that is almost never explained and that orders the whole purchase: public liability is the core section. The other covers a broker will list are neither standalone policies nor synonyms: they are extensions added on top of that base, each with its own wording and, very often, with its own sub-limit.
| Section | Which damage it answers for | Where we expand on it |
|---|---|---|
| Public liability (base) | Non-contractual damage to a third party from the activity and the premises. | It is the section covered by this article. |
| Employers' liability | The injured employee's own claim against their employer, beyond Social Security benefits. | Employers' liability: what it covers |
| Products | Damage caused by defective products already placed on the market. | Product liability |
| Completed operations | Damage appearing after the work has been handed over, once it is outside your control. | Negotiated alongside products. |
| Professional indemnity (E&O) | Financial loss from an error or omission in the technical or intellectual service commissioned. | Professional indemnity for technical services |
| Tenant's legal liability | Damage to the leased premises you occupy, as against the landlord. | Tenant's legal liability |
| Contractors' liability | Liability extended to you for damage caused by contractors and subcontractors. | Contractors' and subcontractors' liability |
| Cross liability | Claims between the policy's own insureds, who without this extension would not be third parties. | Cross liability |
| Property in care, custody or control and property being worked upon | Damage to third-party property in your custody or on which the work is carried out. | Property in care, custody or control and property being worked upon |
The practical reading of the table is uncomfortable: a "liability policy" with no extensions bought covers considerably less than its name suggests. And the extensions that are present usually carry a sub-limit well below the main limit, so the figure on the front page of the policy is rarely the one that responds to the particular claim.
Who counts as a "third party"?
Article 73 of the Insurance Contract Act requires the injured party to be a third party, but it does not say who that is. The policy wording defines it, and that is where cover the client took for granted is lost.
There are four standard exclusions from third-party status: the policyholder and the insureds and co-insureds under the policy itself; the payroll workforce, whose claims are routed through the employers' liability section; partners and directors acting in that capacity; and, depending on the wording, companies within the same group or with cross-shareholdings.
Two specific extensions are born of those exclusions. Cross liability restores third-party status between the insureds, which is decisive in a joint venture or in a programme insuring parent and subsidiaries under a single policy. Employers' liability is the route by which the employee is dealt with, precisely because public liability cannot do it.
Before signing, one concrete check is worth making: if your corporate structure has changed since the last renewal — a new subsidiary, a demerger, a joint venture — the definitions of insured and of third party have probably drifted out of line with the reality of the group.
Limit, sub-limits and temporal delimitation of cover
Public liability normally carries the policy's main limit. The extensions do not: they are sub-limited, and that is the figure that sets the real exposure on each front.
Three concepts are frequently confused and worth separating. The limit per claim is the ceiling on each claim; article 27 of the Insurance Contract Act provides that the sum insured represents the maximum indemnity payable by the insurer per claim. The annual aggregate limit is the ceiling on all claims in the period, and it can be exhausted before renewal. The sub-limit by section cuts into the previous figure for a specific risk. All three coexist in the same policy and the lowest one governs. We develop this in limits, sub-limits and deductibles in a liability policy.
To this must be added the temporal delimitation of cover. Public liability has traditionally been written on an occurrence basis, but in large accounts the move to claims-made — clauses permitted by the second paragraph of article 73 of the Insurance Contract Act — stops being a technicality and becomes a board-level decision, because it determines which future claims will find a policy. The Act permits two non-cumulative forms: the extended reporting form, which requires a reporting period of not less than one year from termination of the contract, and the retroactive form, which requires cover to be extended to events occurring at least one year before inception. These are statutory floors, not market terms: one year is the minimum the law tolerates, not what should be negotiated.
Moving from occurrence to claims-made can leave years of trading with no policy to respond. Let us review your temporal delimitation before renewal.
The role of an independent broker
There is a point here that large accounts tend not to know and that changes the order of priorities. Article 44, second paragraph, of the Insurance Contract Act provides that the mandatory character imposed by article 2 does not apply to insurance contracts covering large risks. In other words: in a large account, the law rescues nobody from a badly negotiated wording. The protections available to an ordinary insured — the requirement that limiting clauses under article 3 be highlighted and accepted in writing — cease to operate with the same force. The only thing protecting the company is what was agreed before signing. In the same line, the Supreme Court itself accepted in judgment 545/2020 of 20 October that in large risks claims-made clauses are validly incorporated without the formalities of article 3 and are enforceable against third parties.
That preparatory work is ours. As an independent brokerage registered with the Spanish DGSFP under reference J0140, we act on the client's mandate and not the insurer's: we read the definition of third party, review which extensions are missing from the base section, argue over the sub-limits nobody looks at and, when the claim arrives, defend the company's position. You can see the scope of the line in our page on liability insurance for companies.
Frequently asked questions
What does public liability cover? The obligation to indemnify a third party for damage arising from the declared activity and the company's premises, where that liability is enforceable at law. It usually includes defence costs and court bonds, subject to the terms of each policy.
What is the difference between public liability and professional indemnity? Public liability responds to non-contractual damage caused to a third party by the activity; professional indemnity responds to the financial loss arising from an error or omission in the technical service commissioned, which is typically contractual liability.
Does it cover damage to the item being worked on? As a general rule, no: the Supreme Court has held that this section does not guarantee the correct performance of the service or cover damage to the item worked upon. That is what the property in care, custody or control and property being worked upon extensions are for, each with its own sub-limit.
Does it cover my employees? No. An employee is not a third party for these purposes and their claim is routed through the employers' liability section, which is separate and carries its own sub-limit.
Is it compulsory? It depends on the activity, not on the section. Some activities require insurance under sectoral or regional rules or licence conditions, and others carry no legal requirement; it is also frequently required by contract. It is worth verifying case by case, as we explain in when liability insurance is compulsory for a self-employed contractor.
Sources and legislation
- Law 50/1980 of 8 October, the Spanish Insurance Contract Act: article 73, first paragraph (definition of liability insurance) and second paragraph (temporal delimitation clauses); article 3 (limiting clauses); article 27 (sum insured as the maximum limit per claim); article 44, second paragraph (non-mandatory character in large risks).
- Royal Decree of 24 July 1889, the Spanish Civil Code: articles 1902 and 1903 (non-contractual liability and liability for the acts of others).
- Spanish Supreme Court, First Chamber, judgment 730/2018 of 20 December, on the scope of public liability insurance.
- Spanish Supreme Court, First Chamber, judgment 545/2020 of 20 October, on the incorporation of claims-made clauses in large risks.
- ICEA, liability class figures reported by the trade press (2026).
This information is for guidance only and does not constitute binding advice. Covers, limits and exclusions are governed in every case by the specific terms of each policy. New Brokers Correduría de Seguros, S.L., registered with the DGSFP under reference J0140.
