Product Liability Insurance

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 2016 alone, over 24,000 product and public liability claims 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.

Get quotes online Speak to a broker Learn about cover

Receive a Quote for Business Insurance

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.
FBI Lender Logos

Receive product liability insurance quotes from these direct insurance brands

Details Features
Business Liability Insurance
Business Liability Insurance
Tailored made cover with a wide range of additional options to choose from. Up to $20 million in liability cover and choice of excess.
  • $20 million in liability cover
  • Consumer protection cover for Queensland electricians
  • 24/7 emergency claims assistance
  • Optional cover for Money, Business Items and Stocks
Go to site More info

Some useful tips

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:

  • Designers, engineers and developers
  • Parts suppliers
  • Product manufacturers
  • Importers, distributors and wholesalers
  • Brands who use only their name to sell products
  • Retailers
  • Installers

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.

Why are retailers and distributors liable for product?

As a distributor or retailer you could be sued for a manufacturer’s product. Here are the circumstances where distributors can be hit with claims for compensation.

Do I need my own product liability cover if my manufacturer has their own insurance?

Even if you sell a product manufactured by another company, and that company has their own product liability policy, you may still want to take out your own cover.

Here are some scenarios to consider.

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

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

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.

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.

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.

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.

Receive quotes for product liability insurance

Picture: Shutterstock

References

  1. https://www.apra.gov.au/sites/default/files/NCPD-Explanatory-notes.pdf

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy.

8 Responses

  1. Default Gravatar
    PariNovember 27, 2017

    Hi, I make my own nail polishes and beauty products, do you have any recommendation for product liability insurance? I already have public liability insurance. TIA

    • finder Customer Care
      JudithNovember 28, 2017Staff

      Hi Pari,

      I hope you are doing fine today. Thanks for your question.

      As we are a comparison website, I cannot recommend or suggest a specific option for you, as your decision would entirely depend on your needs.

      On the page you are viewing, you may fill out the form for you to receive a quote for product liability insurance.

      I hope this helps.

      Cheers,
      Judith

  2. Default Gravatar
    RenaeSeptember 28, 2017

    If we want to be a distributor for a certain camera brand from China. Apart from product liability what other insurance do we need? I would like a quote please. Thank you

    • finder Customer Care
      MaySeptember 29, 2017Staff

      Hi Renae,

      Thank you for your inquiry.

      As we are a comparison website, I’m afraid we may not be able to recommend a specific insurance to you as the best option would depend entirely on your situation by taking into account the type of your business, your cover needs and the insurance you can afford. Nevertheless, there are types of business insurances mentioned on this page that you’d want to check. If you’d like to get a personalised business insurance quote, best to fill out the form from that same page and click on the green “Enquire Now” button.

      Cheers,
      May

  3. Default Gravatar
    fran.dFebruary 21, 2014

    Hello. I am wanting to start a small home based business making baby wash, lotions etc. that a naturally based. I have developed the product and now am looking at the next steps. It will be an online business with myself doing everything and not employing anyone. What type of insurance will I need to start with? and around about what will I need to pay?

    • finder Customer Care
      WilliamFebruary 21, 2014Staff

      Hi Fran,

      Thank you for your enquiry. Considering you are manufacturing your own product to distribute to the public, it would definitely be worth considering taking out product liability cover to offer protection in the event that a claim is made against you. It is not possible to provide you with an estimate for what you will pay based on this information alone as many other factors will need to be considered. finder.com.au is not currently partnered with any business insurance providers but we can recommend the business insurance broker austbrokers.com.au/

      Thanks again for your enquiry and apologies for not being able to provide more assistance at this stage.

  4. Default Gravatar
    alan.yapFebruary 17, 2014

    Hi,

    I am new in business and just started sourcing out for product liability insurance for my business. I am selling security products importing from China and resell it in Australia. However, all of the insurance companies I called advise that they do not offer product liability insurance to anyone that import Electronic products from overseas especially security products (cctv, camera gadgets etc) because I am considered as the manufacturer of the products if I’m importer. The insurance companies advise that we should go for insurance brokers to source for the product liability insurance. We have being sourcing for the past few months and it appears that anyone that sell imported security products from overseas will not be able to cover the business in terms of product liability. Do finder.com.au know of any insurance companies that offer this type of product liability insurance.
    Your help is much appreciated.

    Al

    • finder Customer Care
      WilliamFebruary 18, 2014Staff

      Hi Alan,

      Thank you for your enquiry. Unfortunately, most insurers will exclude cover for products that are imported from overseas. Finder does not currently feature any Business Insurance providers that will provide cover for this type of product distribution. You may wish to make an enquiry with the Australian General Insurance Broker Group Austbrokers.com.au

      We apologise for not being able to provide further assistance with your enquiry at this stage.

      Thanks again for your enquiry and all the best.

Ask a question
Go to site