We are often asked by clients what Products Liability Insurance is.
Essentially, it provides your business with indemnity for claims made against you by anyone that suffers property damage or is injured, by a faulty product that your business either manufactures, supplies or designs.
You may recall the well-documented flurry of injury claims against a well-known pushchair manufacturer following an alleged faulty hinge.
If a product develops a systemic fault across a volume of customers, your Products Liability exposure could be significant.
Does my business need cover?
Many businesses will have an element of exposure to Products Liability.
If you supply, manufacture or design a physical product, then you could be legally liable for any claim against your business.
It is also worth remembering that even if you do not charge for the product and give it away for free, you could still be liable as you have a duty of care to the person you are supplying.
If I am only a wholesaler, how can I be liable, surely fault lies with the manufacturer?
Even if you did not make the product, you could still be held responsible.
It is not uncommon for a lawyer pursuing a damages claim to involve all interested parties. You could be liable if:
- You imported the product from outside the EU
- The manufacturer can no longer be traced or has ceased trading
- Your business name is on the product or packaging packaging
- You offer repair, refurbishment or adaptations to the product
What will I be covered for?
The key components of a Products Liability policy are generally as follows:
- Indemnity against compensation for personal injury caused by your faulty product
- Loss or damage to property caused by the product fault
For a claim to be valid, you would need to provide evidence that the fault could not have been predicted and that it passed all your quality control checks and standards.
This is not a provision for bad workmanship, as such, you need to ensure that rigorous processes are in place to review all products before sale or distribution.
What will be excluded?
The key area of confusion among our clients is generally claims for financial loss. This is particularly prevalent if your business is involved in product design.
For example, you design a shopping trolley for a supermarket chain, after supply, they spot a fault with the handle attachment, and it will not fit the new scanning devices they want to deploy.
The supermarket claim this fault will have a significant financial impact on their marketing plans and make a claim against you for lost revenue.
Under these circumstances, you would need Professional Indemnity Insurance.
Another area of confusion surrounds product recall. If you think back to our pushchair example, the manufacturer was forced to recall every chair they had sold and offered a refund.
While their Products Liability Insurer will provide protection against injury claims, they would not cover the suffered considerable lost revenue from the recall. Under these circumstances, they would need Product Recall Insurance.
How to buy Products Liability Cover
For large manufacturing companies, they may purchase Products cover in isolation.
However, for the majority of smaller SME businesses, it is usually available as part of a small business package or combined liability policy with Public Liability Insurance and/or Employers Liability cover.
You should seek the advice of your Business Insurance Broker who will be best placed to advise on the most cost-effective way to manage the potential risks to your business.