Companies require different kinds of business insurance to protect themselves in the event they have to pay compensation to employees, customers or other third parties as a result of their operations. The types of business insurance they take will largely be determined by legal requirements and the nature of their business. One type of business insurance that many in the manufacturing sector require is product liability insurance.
What Is Product Liability Insurance?
For businesses that design, manufacture, or supply physical products to the market, product liability insurance is needed. This type of product liability insurance policy covers legal fees and payment of compensation claims that may result from customers that have suffered serious injury or property damage due to the possibly faulty products that were sold to them.
It is not just businesses that manufacture the product that may be held directly responsible, though they might bear the heaviest burden in case of litigation. As long as you are part of the supply chain that gets the faulty products to the market, you may find yourself liable and subjected to a lawsuit from anyone harmed by the product. Businesses that often find themselves involved in such lawsuits likely:
- Had their business or company name on the product – this applies to any branded products, including goods for purchase and those given away for promotional purposes
- Been involved in the importation of the product from outside the European Union – companies that are outside the EU cannot be subjected to consumer legislation, leaving the burden of responsibility to fall on your business
- Been involved in the repair, amendment or refurbishment of the product – if the product has been subjected to changes by your business and ends up causing further damage to the product
- Cannot identify the original manufacturer of the product or the manufacturer has gone out of business – this can often happen with second-hand products or if you worked with third party suppliers, leaving the burden of liability on your business
What Does Product Liability Insurance Cover?
Product liability insurance covers the legal fees and compensation costs that can result in lawsuits that make claims for:
- Personal injuries caused to customers that bought and used the faulty product
- Property damage or loss as a result of the use of the faulty product
- Unforeseen events that may have caused the faulty product to go into production, maybe due to errors in your quality control process
The compensation claims may extend to covering the cost of lost income due to resulting injuries, having to make repairs due to damage caused by the faulty product or even the cost of having to replace said faulty product. All these and other claims can financially devastate your business, hence the need for product liability insurance.
Product liability insurance may however not cover financial losses to another business or person caused by product faults. It may not also cover situations whereby the faulty products were a result of bad workmanship.
If your role in the supply chain was just to distribute the product, your product liability insurance should cover you if:
- you can provide certain evidence that the products were already faulty by the time they reached you
- you have a supply contract with the manufacturer that includes terms on product safety concerns, quality control and how to effect returns
- you provided sufficient safety and health warnings regarding the improper use of the product to customers
- you provided customers with terms on how to return faulty products to the manufacturer
- you have a good record-keeping and quality control system
Is Product Liability Insurance Necessary?
As said, your choice of business insurance will be guided by legal requirements and the nature of your business. Product liability cover is not legally required even if a business manufactures.
However, if you are handling physical products, as a designer, manufacturer, distributor or seller, it is advisable to take up product liability insurance as a means of protecting your business and safeguarding the interests of your customers.
When your business involves delivering physical products to the market, you are required, under the Consumer Protection Act, to ensure that said products are safe. If anyone is injured or property is damaged or lost due to your failure to meet this standard, you could find yourself subject to a lawsuit.
While the heaviest burden of this responsibility will lie with the manufacturer, in certain circumstances, as long as you are a part of the supply chain for the defective product, you could still be held liable.
Benefits of Product Liability Insurance
Any form of insurance comes at a certain price. For businesses that prefer to minimise costs, it may seem like this cover is unnecessary. However, it is good to weigh the risks against the benefits when deciding whether or not to take up product liability insurance.
The legal costs and compensation claims that can result from being sued can lead to heavy financial losses if a business has to pay out of pocket. As long as a customer can prove they were injured or suffered property damage or loss due to the faulty product you supplied it can prove devastating to your business, financially and to its reputation, thus affecting even future revenues.
However, even with the best efforts when it comes to ensuring good designs, careful production and quality control, errors can still occasionally happen and without warning. Here is why you will therefore need to invest in product liability insurance.
1. Cover for Manufacturing or Production Errors
As said, mistakes can happen, leading to a faulty product or component part reaching the market. Having product liability insurance ensures you have coverage in case some manufacturing or production flaw gets past you unnoticed.
2. Protection from Design Defects
Before physical products go into production, they first have to be designed. Sometimes a flaw at the design stage may even get past testing and trial runs, erroneously assuring the manufacturer that all is well. The product may eventually reach the market where during wider use a dangerous defect emerges. This is often the reason you can even hear of product recalls after goods have been on the market for months. With product liability insurance, such design errors that have made the product unsafe for use by consumers can be covered. Those involved in just design work should also consider professional indemnity insurance to better protect against paying compensation demands.
3. Response to Packaging and Warning Issues
It is important to include adequate safety warnings or instructions for use on the packaging of physical products. Where you fail to provide this, your company is liable to be sued. Product liability insurance can help to litigate these cases where claims are made due to poor labelling or lack of warnings on the product.
4. Supplemental Commercial General Liability (CGL) Coverage
Product liability cover is typically included in CGL policies. However, this liability insurance may be limited, requiring some businesses to extend it to adequately protect themselves. Taking up product liability cover separately can expand this coverage more, ensuring you adequately protect your business from suffering heavy financial losses that could result from lawsuits linked to faulty goods.
How to Secure Product Liability Insurance?
Taking up product liability insurance means that your business is somehow involved in the design, manufacture/production, distribution or supply of physical products to the market. Being a part of this supply chain places your business at high risk of being sought after for compensation if consumers are injured or suffer some property loss or damage as a result of using a faulty commodity you were a part of delivering into their hands.
Businesses may have difficulty in establishing if their operations warrant this kind of liability insurance and to what extent. They may also find it challenging to find insurance providers that offer cover at competitive rates for this product liability cover.
This is where First Business Protection comes in. The cumulative experience of our insurance experts has demonstrated an urgent need for bespoke insurance solutions for businesses that may require product liability insurance.
There are so many factors that differentiate one business from another. They can vary in terms of the scope of their work, the types of customers they cater to, revenues they generate, and potential risks they are exposed to. Given this uniqueness, it makes sense to turn to professionals who can properly evaluate your business to determine what range of insurance products are needed for adequate liability insurance coverage.
Once we have conducted a risk assessment and discussed your needs, we can then generate a business insurance quote that includes product liability insurance coverage. With our access to various markets and insurers, we are well-placed to provide you with a competitively priced insurance quote that has been fully negotiated to ensure you are getting the best deal possible. We represent the interests of our clients when dealing with insurers to ensure they are getting the very best value for their money.
We take a personal approach to our dealings with clients. We feel as invested in securing their success which contributes to our own. As an independent insurance broker, we make every effort to leverage our experience and expertise in securing them a tailored insurance package that adequately meets their needs. Our dedicated claims team is also always on hand to assist our clients so they can quickly get back on their feet.
With our keen understanding of how the business world operates and insight into the insurance business, we do strongly advocate for our clients, ensuring they enjoy optimal business insurance coverage at the most competitive rates possible.
Our comprehensive insurance solutions will help save you considerable time and money in handling product liability claims. Let us help you achieve peace of mind and the ability to focus on your core business without worrying about the unexpected.
