Product Liability insurance provides protection for your businesses against financial losses resulting from a claim made by a third–party for personal injury or property damage caused by product/s your business provided.
Product Liability commonly forms part of a Public Liability policy. A product is usually defined in the insurance policy wording, something which you should check as each policy will have its own unique definition. In generally refers to anything which is 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.
This cover (which comes as part of a public liability policy) is designed to cover the costs of damages if awarded if the product/s you supply cause injury or property damage. It will also cover the costs of investigating and defending a claim made against you, inclusive of legal fees and court attendance costs even if your product was not defective.
Take the time to check your cover limits in your policy and any exclusions and geographical limitations.
Am I liable for the products I manufacture or sell?
In Australia, if you manufacture or make products accessible to the public (i.e. sell or give away), you are legally responsible for making sure 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 you import goods you are deemed to be the manufacturer and by Australian law you have the same legal responsibility as the actual manufacturer.
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.
Beware that even if you have not manufactured the products yourself and only assembled the goods, placed your own brand name on the goods, promote yourself as the manufacturer to the public, or allow an external party to promote your goods as having been manufactured by you, under the ACL you may be deemed as the manufacturer.
If your business interacts and exports within the online global marketplace it is important to check the geographical limits listed within your policy.
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?
Product Liability insurance is an essential form of protection for any business that supplies a product in any of the forms outlined above. No matter how much care you may take when manufacturing or sourcing the products you make available to the public, there is always a chance for something to go wrong or for an accident to happen.
A claim for personal injury or property damage resulting from a product defect could cause financial devastation to your business if you don’t have the right insurances in place. The impact of a liability claim can be too hard for some businesses to bounce back from, especially when they are not insured or do not have adequate cover, causing them to close up shop for good. If you are a sole trader, you have unlimited liability, meaning you will be held personally responsible which could affect your personal assets.
A Product Liability claim could arise from:
- Faults in the manufacturing or production of the product
For example, the plastic casing for the wires of a computer power adapter are not put together tightly enough, meaning they can come loose exposing internal circuits and cause an electric shock.
- Defects in the design of the product
For example, the fabric of a tee shirt that has been manufactured using a dye that contains hazardous chemicals that 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 providing adequate instructions on how to use the equipment properly, or it fails to warn buyers of the potential risks of using the equipment, which could cause the customer to injure themselves. Or, a food manufacturer promotes that their product is nut free, however, the product contains traces of nuts that could cause an adverse reaction to consumers.