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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.
How can this page help me?
What is product liability insurance?
Product liability insurance is a type of product insurance designed for businesses that provide goods and services to people in exchange for money. It can make sure you are protected if the products you sell directly or indirectly cause harm to anyone.
You could be providing products to end users, such as in a retail store, or using products to fulfil your service, such as a plumber installing bathtubs. If that product was to make someone ill, injure them or worse, and you became liable, product liability insurance can protect you from the financial repercussions.
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:
- Designers, engineers and developers
- Parts suppliers
- Product manufacturers
- Importers, distributors and wholesalers
- Brands who use only their name to sell products
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.
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.
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.
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