What is Product Liability Insurance?
Product Liability insurance usually forms part of a Public Liability policy. It is designed to protect businesses against the financial losses incurred as a result of somebody making a claim against your business for personal injury or property damage that has been caused by the product/s you provided.
The definition of a ‘product’ is usually defined in the insurance policy wording, and it is important to check the definition in each individual policy. However, it generally means anything that has been manufactured, constructed, erected, assembled, installed, grown, extracted, produced or processed, treated, altered, modified, repaired, serviced, bottled, labelled, handled, sold, supplied, re-supplied or distributed, imported or exported by you, or on your behalf.
If the product/s you supply do cause injury or property damage, Product Liability insurance will help to cover the cost of damages awarded, as well as the costs of investigating and defending a claim made against you, including your legal fees and court attendance costs.
Even if you are found to be not negligent, Product Liability insurance will assist with covering the costs of defending such allegations.
It is important to always check the cover limits in your policy, as well as any exclusions and geographical limitations.
Am I liable for the products I manufacture or sell?
In Australia, if you manufacture or make products available to the public (i.e. sell or give away), you are responsible for ensuring those products are safe; that they comply with product liability laws; and that they meet the relevant mandatory standards set under the Australian Consumer Law (ACL).
If the products you sell or make available have a safety defect that causes personal injury, illness, death or property damage, a consumer (or dependents of a person injured or killed) can seek compensation by taking the manufacturer to court.
Even if you have not manufactured the products yourself, but you simply assemble the goods; import the goods; use your own brand name on the goods; promote yourself as the manufacturer to the public; or allow somebody else to promote your goods as having been manufactured by you, you may be deemed to be the manufacturer under the provisions of the ACL.
For more information on your responsibilities as a manufacturer, please refer to the Australian Competition and Consumer Commission website.
Do I need Product Liability Insurance?
Because of the broad definition of products in insurance policies, Product Liability Insurance is essential for any business that supplies a product in any of the forms outlined above. No matter what precautions you take when manufacturing or sourcing the products you make available to the public, there is always the potential for something to go wrong or an accident to occur.
Claims arising from personal injury or property damage as a result of a product defect can be extremely expensive, and without the right insurance you could find yourself in hot water. Many businesses are forced to close following a liability claim if they are not insured, or are inadequately insured. Particularly if you are a sole trader, you have unlimited liability, meaning you are personally held responsible which could affect your personal assets.
A Product Liability claim could arise from:
- A fault in the manufacturing or production of the product
For example, the plastic casing which houses the wires of a computer power adapter is not put together tightly enough, which could come loose exposing internal circuits and cause an electric shock.
- A defect in the design of the product
For example, a clothing item that has been manufactured using a dye that contains hazardous chemicals which are classified as carcinogens, and could potentially cause illness when exposed to it.
- Defective warnings, instructions or labelling of the product
For example, a piece of fitness equipment is sold without adequate instructions on the proper use of the equipment, or fails to warn buyers of the potential risks of using the equipment, which could cause the purchaser to suffer an injury. Or, a food manufacturer advertises that their product is nut free, however the product contains traces of nuts that could cause an adverse reaction to consumers.