Product Liability Insurance

Do you sell physical goods and products? Protect yourself with product liability insurance.

If you're a manufacturer, a retailer or you sell physical goods then you may be exposed to 'product liability'.

In 2017 alone, 30,000 product and public liability claims for accidents occurring that year were reported in Australia¹. Product liability claims can occur for a variety of reasons from spoilt food that causes sick patrons all the way through to a faulty camera that injures a customer.

Product liability insurance provides cover for people who manufacture, distribute or sell and protects you any resulting financial damages. It's often bundled with public liability cover.

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If you are ready to speak with a consultant about different business insurance options available, simply enter your details in the form. Keep reading if you want to learn more about the different types of cover available.

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Some useful tips

• How do I compare policies?

  Along with choosing the lowest priced cover, you'll want to make sure you’re not giving up anything important. Once you've found a few quotes for policies within your budget, you'll want to take a close look at the differences.

  Here are some tips to help you home in on the right policy for you:

  • Is the insurer strong financially?
    • You don't want your insurer going bankrupt mid-claim.
  • How is the customer service?
    • Check some online reviews and see how others describe their experiences with the insurer.
  • Do they have a wide selection of products?
    • Business insurance consists of many types of cover. Make sure your insurer offers the selection you need.
  • Is the insurer flexible?
    • If your business is constantly changing or poised to grow, you'll want an insurer that can adjust your policy on the fly to accurately reflect your business conditions at any given time.
  • What is the claims process like?
    • Make sure you're happy with the claims process including any time limits for claiming, the time it takes to decide on a claim and to pay it, the number of steps involved in making a claim and what support is available during the claims process.
  • Are there any additional benefits?
    • Check to see if the insurer offers any other benefits. For example, some insurers will offer loyalty discounts for customers who've been with them for a number of years.
  • What isn't covered?
    • Every insurer has a set of situations listed where they won't pay a claim. Most of these will be similar from insurer to insurer, but there may be small differences that have big implications for some businesses. Read these exclusions carefully.

  Remember that a broker will already know all of this and help walk you through the comparison process if you decide to go that route.

• How can I best save on product liability cover?

  Although it's probably not a good idea to cut corners just to save a buck or two on product liability insurance, there are still ways you can save some money. Here's how:

  • Use a broker
    • A broker knows all the ins and outs of business insurance and has relationships with multiple insurers. You tell them what you need and they'll seek out the best fit in terms of value and cost. Using a broker may not only save you money, it may also save you a lot of time going from insurer to insurer yourself.
  • Increase your out-of-pocket expenses
    • This is called your excess, or the amount you agree to pay for each successful claim. The more you agree to pay, the more your premiums go down. Just make sure it's an amount you're comfortable paying should you ever need to claim.
  • Decrease the amount you’re paid per claim
    • These are your benefit limits. The less your insurer has to pay you (or the person suing you), the more you can save on premiums. Remember that lawsuits can be very expensive and put you on the hook for hundreds of thousands or even millions of dollars, so make sure you understand the risks of reducing your cover too much and speak with your broker or insurer if you are unsure.
  • Get a bundled deal
    • Product liability is one of many types of business insurance and it's almost certain you'll need a few more (building and contents, theft, professional liability, etc). Business insurance is highly customisable, so it makes sense to go through only one insurer who can customise the perfect solution for you. You'll probably get a discount for going this route.

• Is product liability insurance tax-deductible?

  You can deduct the costs of product liability insurance from your taxes because they are considered a business expense. Your broker or insurer will send you a tax invoice each year, depending on who sold you the policy.

What does product liability insurance cover?

Product liability insurance protects businesses that sell products from lawsuits that claim a product has caused injury or damage.

What expenses are covered?

This type of insurance helps you pay for your defence and for any money you may end up owing as a result of damages (if any).

Product liability insurance is a close cousin of public liability insurance, which covers damages not caused by products. In fact, many policies combine the two into one, simply called "liability" insurance.

Do I need product liability insurance?

While it's not mandatory, product liability is strongly encouraged for businesses involved in the life cycle of a product. This can include parties that are directly or indirectly responsible for the damage. Here's who it could include:

As you can see, many people could be liable for a faulty product. That's because lawyers will try to determine who's responsible for the product failure and that blame does not always lie with the same party. For example, an electrician installing a power point in a home may not have created or imported the products used but they could still be liable for claims if they didn't install them properly.

Do I need product liability insurance if I'm not a manufacturer?

Designers, manufacturers, parts suppliers and even installers might be responsible for damages. After all, any one of those businesses is capable of physically building fault into a product.

What about Australian businesses that only sell those products? Here are some situations where businesses such as distributors and retailers could be implicated:

• The product came from overseas. Investigators might not have jurisdiction to hold an overseas manufacturer responsible, in which case the fault can then be blamed on the importer in Australia.
• The manufacturer at fault went out of business. If you’re a distributor or wholesaler, you can be dragged in to court even if you're not at fault, if the manufacturer who was at fault is now out of business.
• You give incorrect product instructions. If you're a retailer and you give a customer incorrect instructions on how to use a product, you could be held responsible for damages if the customer uses the product incorrectly.
• You alter or damage the product, making it unsafe. Anyone in the product chain can damage the product either accidentally or by altering it in some way. This can place the liability on you if someone injures themselves as a result.

As an example, an electrician installing a power point in a home may not have created or imported the materials required but they are still liable for claims in the event that their work turns out to be faulty.

What isn't covered by product liability insurance?

Situations where your policy won't cover product damage are called exclusions and every policy has them. Below are some common exclusions you'll find in most policies. Make sure to read the policies you are considering carefully in case there are any small differences that could have a big impact on you.

Some situations where you probably won't be covered by product liability insurance:

How is product liability insurance different to public liability insurance?

Product liability insurance covers one facet of liability. Another key type of liability protection is public liability insurance. The differences lie in how these injuries/damages happen. Here's a simple breakdown

Both types of insurances are related to each other in the sense that they protect the manufacturers and the other people in the commerce chain against lawsuits filed by users.

Can product liability and public liability insurance be taken out together?

Product liability insurance is often covered under a public liability insurance policy or bundled together. In some cases you can get standalone cover. Be sure to check with the insurer before making any assumptions.

Types of liability insurance in Australia

What's the difference between product liability insurance and professional indemnity insurance?

While both public liability and professional indemnity insurance are designed to protect professionals and/or business owner, both types of cover have some key differences to be aware of.

Do I need all three?

If you have a physical location, sell products and offer services, you will most likely need all three types of insurance. The good news, is that most business insurance providers will give you the opportunity to bundle and combine these policies to suit your circumstances.

How much does product liability insurance cost?

The cost of your product liability cover depends on your unique circumstances. The insurer will work out a quote based on how likely they think they'll be on the hook for a claim related to the products you sell.

Your cost could be anywhere from a few hundred to tens of thousands of dollars per year, based on the following factors:

• What types of products you sell. Someone selling pillows is likely to pay less than someone selling hunting knives, all else being equal.
• How many products you move. The higher the volume of products you sell, the more likely someone could get injured and the higher your premiums will be. It's a numbers game.
• Where you are in the product chain. A retailer is less likely to be at fault than the manufacturer would be for a faulty item, meaning retailers would pay less as far as that goes.
• The structure of your policy. You can decrease the cost of your policy by choosing higher out-of-pocket costs (excess) and lower benefit limits, and vice versa.
• Your claims history. If you've been found to be at fault for product damages in the past, you're probably going to pay more than a similar business that hasn't.

Want to avoid a claim? Here are a few tips

As we've seen, blame for a faulty product can lie anywhere along the chain of businesses that ultimately get that product to the customer. Here are some tips that will help you avoid a claim, wherever you are in that chain:

• Think safety first. Make sure product safety is central to the company's operations.
• Don't break the law. When designing, manufacturing and selling products, make sure you follow all relevant legal guidelines related to safety.
• Give clear warnings and instructions. Place the appropriate warnings on your products (such as age limitations) and make sure the usage instructions are written clearly.
• Maintain quality control. Have a system in place that allows you to detect imperfect product units.
• Train the sales and marketing teams. These teams should be able to explain how the product works, how to use it and if it poses any safety risks. They can also serve as a field service that can detect trends, identify potential hazards and help resolve safety concerns before they blow up.
• Maintain vigilance in the supply chain. You can be responsible for faulty parts, especially if the part supplier is overseas. Make sure all parts adhere to design specifications.
• Have a legal team in place. Make sure your legal team is familiar with rules and regulations surrounding your product and what you are and aren’t responsible for regarding how customers use your product.
• Keep good records. If you've taken great care to design, manufacture and sell your products, courts and juries should respond favourably to documentation that proves this.

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References

1. https://www.apra.gov.au/sites/default/files/Table%25202%2520-%2520PPL.xlsx