What is Product Liability Insurance? And Other FAQs

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Product liability insurance protects you against liability claims due to the products your business sells. While it's not required by UK law, product liability insurance can protect you if you're sued, and may be a condition of contracts you have with suppliers, manufacturers, distributors or retailers. Here we explain what it is, what types of claims are covered and who needs to buy product liability insurance.

What is Product Liability Insurance?

Product Liability insurance protects against claims of bodily injury or property damage due to the use of your business's goods or products. Specifically, product liability insurance provides financial protection by covering legal fees as well as as compensation payments. Product liability insurance covers:

  • Legal fees to defend claims of bodily injury or property damage due to a product you sold
  • Compensation payments you're required to pay as a result of a claim

So, product liability insurance can protect your business financially from having to pay legal defence costs and compensation if you're sued by a customer—but what types of circumstances does this apply to? Here are some examples of situations that could be covered by a product liability policy:

Examples

  • You buy hammers from China and resell them in the UK. The heads fly off the hammers when they're used, injuring customers and causing property damage.
  • You make handmade ceramics. In your latest batch of mugs, the handles are prone to breaking off, leading to customers being injured by scalding.
  • You bake and sell cupcakes at local fairs. It turns out there are trace amounts of peanuts in your nut-free cupcakes, sending a child with a peanut allergy to hospital with a life-threatening reaction.
  • The tablecloths you sell in your gift shop turn out to be highly flammable, contributing to a house fire when a candle in someone's home is accidentally knocked over.
  • A dog toy you make and sell online at etsy and ebay has toxic filling. Numerous pets fall seriously ill.
  • Your company designs a child's riding toy. The toy breaks whilst being ridden by some children, causing injury.

Product liability insurance can protect you and your business from having to pay thousands or even millions in legal costs and compensation payments in these types of situations—where you make, distribute, retail or sell products in any way.

Do I Need Product Liability Insurance?

Product liability insurance is a popular type of business insurance and you're likely to need it if you are involved anywhere in the supply chain of a product—including design, manufacturing, distribution, supply and retail.

Every business that sells a product along its path to a consumer is meant to ensure the safety of a product. In fact, the Consumer Protection Act 1987 Section 2(1) specifically states that "... where any damage is caused wholly or partly by a defect in a product, every person... shall be liable for damage."

Even if you're not ultimately liable for a product that causes bodily injury or property damage, you could be named in a lawsuit and face legal defence fees, which can quickly mount up.

What Types of Claims does Product Liability Insurance Cover?

There are a number of different types of injury or damage claims that product liability insurance can protect against. Here are a few examples:

1. Design Defect

With a design defect claim, it's argued that a product's design led to a product being dangerous. With these claims it's not the manufacturing process at fault or the craftsmanship of a product, but the original design that resulted in an unsafe product.

Example: a customer purchases a plastic toy for children that was designed with holes around the size of a child's finger. A child's finger becomes stuck in the toy, leading to a serious injury. In this case it was the inherent design of the toy that created the risky situation leading to bodily injury.

2. Manufacturing Defect

The most common type of product liability claim, a manufacturing defect flaw claim alleges that a product is unsafe due to the manufacturing or production process—in this case the design was safe but something happened during the making of a product to make it unsafe. Products with a manufacturing fault can lead to a dangerous situation resulting in bodily injury or property damage.

Example: For example, an electric hotplate has a faulty temperature control, causing some products to overheat to dangerous and unexpectedly-high temperatures. Numerous customers are burned as a result.

3. Warning or Labeling Failure

A warning failure claim alleges that a product did not come with sufficient instructions, labels or warnings regarding how to use the product safely. It could be that a product is only safe to use under certain conditions or by following certain instructions.

Example: A natural face cream that you sell does not include a warning in its instructions that the product makes your face more sensitive to sunlight.

Common Exclusions

Product liability insurance terms will vary depending on the insurer, but there are some common exclusions to know about. Also, keep in mind that product liability insurance covers third party claims only (e.g., claims brought by your customers, clients or others in the supply chain), not claims by your employees or a business owner.

  • Claims brought by your employees
  • Damage to your business
  • Pollution
  • Product recall and repair
  • Bad workmanship
  • Financial losses to a third party caused by your defective product

FAQs

In the UK, product liability cover is typically wrapped up with public liability insurance in the same "Public and Products Liability" insurance policy. But sometimes public liability insurance and product liability insurance are sold separately. Before you buy a policy, however, check to be sure.

Yes, product liability insurance also covers situations where you give away your product for free.

Yes, product liability insurance covers all aspects of the supply chain, starting with product design. When a product's design leads to a risky situation leading to bodily injury or property damage then product liability insurance can cover legal defence costs and compensation payments if you're sued.

Product liability insurance is typically sold with limits between £1 million and £10 million in the UK. The amount you need will depend on the potential risk of your products; also your B2B contracts might specify a certain minimum product liability requirement.

No, product liability covers third party bodily injury or property damage claims related to the products you sell while professional indemnity insurance covers third party claims if your professional advice or service leads to a client's financial loss.

Any company making, supplying and/or selling products to customers should have product liability insurance, as they could face legal action if their goods cause bodily injury or property damage. Whether you're making your own goods to sell on Amazon or reselling goods manufactured or supplied by someone else, you are part of the supply chain and could be at risk without the right cover in place.

Every company in the supply chain should have product liability insurance. Even if you're not ultimately liable for a product that causes bodily injury or property damage, you could face legal action and need to pay legal defence fees.

Yes, all businesses in the supply chain are meant to ensure the safety of goods you supply. Therefore, distributors should have product liability insurance to protect against third party claims of bodily injury or property damage due to a product.

Yes, all businesses in the supply chain should have product liability insurance to protect against third party claims of bodily injury or property damage due to a product. The Consumer Protection Act requires that you ensure the goods you sell are safe. While insurance is not required by law, it may be required by your vendors.

Yes, builders should have product liability insurance because they supply/sell parts to their customers. If a product you supply causes bodily injury or property damage then you could face legal action—which product liability insurance can protect you from financially.

Yes, an electrician should have product liability insurance to protect against a product you supply causing injury to someone or damage to property. For instance, if a part you supply has an electrical defect and causes a fire, you could be sued for damages.

Yes, a craft business needs product liability insurance to protect against claims from your customers if they are injured or their property damaged by one of your products. For example, if you sell handmade potholders and a customer's hands are burned whilst removing a hot dish from the oven, causing him to drop the dish which shatters their tiled kitchen floor, you could be sued for bodily injury for the burn and/or be required to pay compensation to repair the broken tiles.

Yes, if you're selling products on etsy you should have product liability insurance to cover claims from customers who are injured (or their property damaged) by using your product. For example, if you make and sell child's toys with pieces that come off an present a choking hazard, you could be sued if a child is injured or dies.

Yes, if you're selling products on ebay you could face legal action if one of your products causes injury or property damaged—the Consumer Protection Act 1987 states that everyone in the supply chain is responsible for supplying a safe product. This applies to both new or second hand goods being sold (with the exception of antiques and second-hand goods that are sold with the clear understanding that they need to be repaired prior to use).

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