Product liability insurance claims: Here are the facts
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:
Damage to property over the value of £275
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.