Product Liability Insurance

If you're a manufacturer, a retailer or you sell physical goods then you may be exposed to 'product liability'. Product liability claims can occur for a variety of reasons from spoilt food that makes someone sick 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.

Product liability insurance cost in Australia

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.

What does product liability insurance cover?

Product liability insurance coverage can protect your business against a wide range of scenarios including:

Personal injury and illness. If a customer is harmed as a result of your product. For example, if a product malfunctions and injures someone or a food or vitamin product makes someone ill.

Property damage. If your product damages someone's property. For example, a faulty pipe damaging a home.

Software damage. If a product of yours damages software. For example, malware damaging computer systems.

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.

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:

• The product contains asbestos
• You've signed a contract with someone that holds you liable, where otherwise you wouldn't be liable by law
• The product has faults that you knew about before you got cover
• The damage is to the faulty product itself
• The damage or injury is supposed to be covered by workers compensation
• Your faulty product keeps someone from being able to use their undamaged property

• For example, if your product malfunctions in someone's house and damages the floor, you'll be covered for damages to the floor but not for damages related to them not being able to use the house while the floor is being fixed.

• The costs are related to you fixing a faulty product that someone returns
• You own the damaged property or the damaged property is in your care
• The cost is related to any guarantee or warranty you've offered on the product
• The cost is related to recalling an item (unless you've added the special recall cover as an add-on)
• The cost is related to the loss of electronic data

What's the difference between public and product liability insurance?

In a nutshell, product liability insurance is a subset of public liability insurance. It covers you when it is your product that causes the harm. Public liability on the other hand, is a little broader. It protects you from lawsuits that may not necessarily be related to the products you provide. For instance, if you are a store owner and someone comes in to use the bathroom and slips, public liability would protect you in case of a lawsuit. Check out the examples for further clarity.

Product liability

The damage happens because of a product you made or sold. Example: You're a bicycle shop owner and you sell someone a bike with an overinflated tyre that pops and causes them to crash.

Public liability

The damage happens on your premises and is unrelated to your products or direct service offerings. Example: You're a bicycle shop owner and someone slips on some gear grease that had been spilt on the shop floor.

Product liability insurance is often covered under a public liability insurance policy or bundled together. You may find that they have different types of coverage limits. For example, your public liability policy may have an unlimited number of claims per year that it will cover you for, while your product liability is more likely to be capped at a certain dollar amount. If you think about it, public liability has to cover you for a lot more than just your products, so it makes sense that product liability cover is often slightly smaller.

Want to avoid a claim? Here are a few tips

While you could receive a benefit in a claim, it's often better to avoid the hassle of making a claim in the first place.

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.

Frequently asked questions

• 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 is product liability insurance vs 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.

  Professional Indemnity Insurance

  • Provides coverage for claims against business owners against alleged or actual breach of professional duty.
  • Professional indemnity insurance covers the risk that is linked to professional duty when providing advice, design or a service for a fee.
  • This type of cover is often taken out by a whole range of professionals including computer consultants, marketing and PR agencies, consulting engineers, architects, project managers, accountants and photographers.

  Product Liability Insurance

  • Provides the business owners with funds to compensate a third party that may have suffered injury or property damage arising from use of products or through an occurrence related to the insured's business activities.
  • Product liability cover does not usually recognise claims where for professional services.