Liability & Indemnity

Product liability insurance claims: Here are the facts

Allison S Robinson | 18 September 2021 | 3 years ago

Product liability insurance claims

Product liability insurance is there to cover you if a fault occurs with a product that you have supplied which results in a customer incurring damages. Although this type of insurance isn’t legally required, it’s always recommended if you manufacture or distribute products to individuals or businesses. But what happens if you need to make a claim on your product liability insurance?

In this article, we’ll tell you everything you need to know about product liability insurance claims, from the process you’ll need to follow to make a claim on your insurance, to what will happen if you need to go to court.

What is product liability insurance?

Product liability insurance is a type of business insurance that is designed to cover the cost of dealing with a compensation claim related to products that you design, manufacture or supply. These claims may come about if a customer is injured or has sustained damage as a result of a defect or fault with one of your products.

This type of insurance provides cover for legal fees, compensatory costs and any other costs that you may incur as a result of the claim.

It’s important to note that you can be held liable for claims related to products that are manufactured by your business, but also for products that were designed by your organisation and manufactured elsewhere. You can also be held liable for damages caused by products that bear your company’s name, or that you have refurbished. This is why product liability insurance is such an important tool for every business that designs, manufactures or distributes goods.

For example, if you manufacture wooden toys for children and a part that should have been secured comes loose, causing a child to choke, you could be legally required to pay compensation for the damages caused. If you have product liability insurance, this could cover legal fees, as well as the compensation owed.

Who needs product liability insurance?

Although product liability insurance is not legally required, it is strongly recommended that anyone involved in the design, manufacture or distribution of a product has this type of cover. Anyone that is involved in the supply chain of a product could be summoned to court or held liable for damages caused by the product, so it’s essential that you cover yourself.

Product liability insurance is recommended for the following people:

  • Anyone who designs products
  • Anyone who manufactures or produces products
  • Those who import products
  • Anyone who repairs or refurbishes products
  • Suppliers and distributors of products
This type of cover is also strongly recommended if you do not know the manufacturer of the products that you are selling. This particularly applies to businesses that sell second-hand products, where it may often be impossible to identify the original manufacturer, or the manufacturer may no longer be in business.

It’s also a good idea to look out for ‘hold harmless’ agreements that suppliers may ask you to sign. These arrangements may indemnify the liability of the manufacturer, leaving you with responsibility for the safety of the product.

What does the law say about product liability?

For product liability cases, we refer to Part 1 of the Consumer Protection Act 1987. This document sets out the rights that consumers are entitled to when they purchase a product.

This act states that manufacturers of goods, those selling private label products under their own brand names and those who import into the European Union for resale hold civil liability for any damages caused by a product defect. It goes on to say that there is no need for a consumer to demonstrate fault or negligence, as liability is strict.

The act also sets out that ‘damage’ includes:

  • Death
  • Personal injury
  • Damage to property over the value of £275
Types of product liability claims

What are the three typical claims for a product liability case?

It’s important that you understand exactly what your product liability insurance will cover. Every insurance company is different, meaning that no two insurance policies will be identical. That’s why it’s so important to read your policy terms carefully and ensure that you understand exactly what is covered by your policy.

The majority of product liability insurance policies will cover the following three types of claim:

  • Personal injury as a result of the faulty product
  • Loss or damage to property as a result of the faulty product
  • Unforeseeable circumstances – for example, a product fault that could not have been detected by your quality control processes

Can you be sued for product liability if you didn’t manufacture the product?

Every part of the supply chain could be held liable if the product is later found to have a defect which causes damage, loss or injury. This is particularly the case where the manufacturer of a product is unknown, for example where a product has been sold second-hand or refurbished. In these circumstances, the retailer could be held responsible for any defects in the product.

If you are not the manufacturer of a product, but you are involved in its supply chain, it’s still advised that you have product liability insurance. In most cases, this insurance will cover you providing:

  • The product in question was already faulty when it was supplied to you
  • Customers were provided with adequate safety instructions and misuse warnings
  • You have good quality control processes in place and maintain accurate and up to date records
  • You have a supply contract with the manufacturer that covers quality control and product safety
  • You have terms with the manufacturer that states that faulty goods will be returned to them
As always, every product liability insurance policy is different, so it’s essential that you check the specific terms of your policy.

Is product liability insurance the same as a product warranty or guarantee?

Many people wonder if taking out product liability insurance means that their customers have a warranty on the product. However, this is not the case. It’s easy to confuse product liability insurance with guarantees or warranties, but it’s important to note that these are two very different things.

A product warranty or guarantee comes into force where a product doesn’t meet the expected standards, or if it fails to perform its intended function. In these scenarios, where a product is faulty or isn’t to a customer’s satisfaction, the customer is entitled to a refund or replacement under a product warranty or guarantee.

Product liability insurance is only required when a faulty product leads to damage to property or injury to a person. The insurance covers the associated legal fees, as well as any compensation or associated costs incurred as a result of the claim.

What to expect when a product liability case goes to court

When a claim for product liability case is made, it will be assigned to a procedural track by a judge. The three procedural tracks for product liability cases are:

  • Small claims track – This track is typically for uncomplicated claims with a value of up to £10,000.
  • Fast track claims – This track is usually for claims between £10,000 and £25,000.
  • Multi-track claims – This track is typically for more complicated claims with a value of £25,000 or higher.
Product liability cases that are assigned to either the small claims track or the fast track are generally heard in the County Court. This is because the value of the claims is typically low, and the case is usually low in complexity.

On the other hand, multi-track claims may be assigned to either the County Court or High Court, depending on the details of the individual case. In the majority of cases, a product liability case which begins in the High Court will later be transferred to the County Court. However, there are some cases where it may remain in the High Court, for example, if there is a high public interest in the outcome, or if the case is extremely complex.

Whether the product liability case is heard in the County Court or the High Court, it will be heard by a single judge in the first instance. However, if the case then goes to an appeal, there will be several judges involved. Product liability cases do not require a jury for the hearing.

Defending product liability claims

Defences to a product liability claim

If a consumer makes a claim against your product liability insurance, you may be wondering whether you can defend the claim. The good news is that product liability claims are heard in a court, so you will have the opportunity to defend the claim if you wish. Your product liability insurance should also cover the cost of hiring a solicitor to represent your case.

Valid defences against a product liability claim include:

  • Development risks defence – It would not have been possible to identify the defect with the scientific and technical knowledge available at the time of manufacture
  • The defect has been caused by compliance with a requirement of law.
  • The product was not supplied to the consumer – for example if the product in question was stolen or is counterfeit.
  • The defect did not exist at the time that it was put into circulation – for example if the product has been damaged or modified.
Whilst these are defences that have previously been used to successfully overturn a product liability claim, we’d always recommend consulting with an experienced solicitor if you are defending a product liability claim. After all, they’re the experts!

Product liability claim time limit

There is a time limit during which a product liability claim must be made. If the claim is not made within this time limit, it will not be a valid claim and damages will not be awarded to the claimant. So, what is the time limit for making a product liability claim?

Product liability claims must be made within three years of the damage occurring or it coming to the knowledge of the consumer. Claims must also be made within ten years of the date on which the product was manufactured or supplied.

Related questions

Is it a legal requirement to have product liability insurance?

Product liability insurance is not a legal requirement. This means that no manufacturer, retailer or distributor is legally required to hold product liability insurance. However, it’s always recommended to hold this type of insurance to cover you in the event of a claim. For example, if a defect in your product resulted in injury, damage to personal property or even death, you could be sued. Product liability insurance would cover both your legal costs and any compensation that you are required to pay as a result.

It’s also important to note that product liability insurance may be a requirement if you wish to work with certain manufacturers, suppliers, retailers or distributors.

How can I reduce the price of product liability insurance?

The price of product liability insurance will depend on how likely the insurance company thinks that it is that you’ll be making a claim on your policy. For this reason, you may be able to reduce your insurance premiums if you can demonstrate to the insurer that your business is at very low risk of being involved in a claimable incident.

This includes providing instructions on how to properly and safely use your products, carefully monitoring the safety of your products and making improvements wherever possible, responding quickly to any safety concerns and providing consumers with warnings of any potential risks of using your products.

In summary

Product liability insurance covers your business in the event that a defective product causes damage. This could be an injury, damage to personal property or even a death. If a claim is made for product liability, your insurance will cover the associated legal costs, as well as any compensation awarded to the claimant.

Although product liability insurance is not a legal requirement in the UK, it gives businesses peace of mind that they will be covered in the event of a claim. If a claim is made for product liability and the business does not hold product liability insurance, they could be liable to pay thousands in legal fees and compensation for damages. That’s why it’s so important to be clued up when it comes to product liability insurance claims.

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