Insurance · 17 September 2021

What is product liability insurance? Everything you need to know

what is product liability insurance

We’ve all heard horror stories about people suing companies because they got sick or injured after using their products, but it’s not just big brands that need to be concerned. Whether you’re looking to sell your own handmade items online or you have an e-commerce store selling other people’s products, if something goes wrong, you could face some serious legal consequences.

Product liability insurance is a must for any business that manufactures, distributes, or sells products. It covers injuries or illnesses sustained by consumers caused by the defective nature of products. Product liability can be caused by a range of issues such as manufacturing defects, design flaws, or improper labeling and marketing. Product liability insurance can protect your company against lawsuits and expensive legal fees which could have potentially catastrophic consequences.

But how do you know if your business needs product liability insurance?

This article will explain what product liability is, how you can protect your company, and the best way to find comprehensive product liability insurance.

What is product liability?

Product liability refers to a legal responsibility of a manufacturer, distributor or seller over the safety and use of their products. If someone is injured as a result of using your product, they can file a claim against you under the assumption that it was either defective in some way which led to injuries or illnesses, or that inadequate instructions were provided about how to safely use it for its intended purpose. Potential lawsuits could be for a range of different claims such as personal injury, property damage, bodily injury, serious illness, or even death.

What is product liability insurance?

Product liability insurance covers the legal fees and potential lawsuits that can arise in these kinds of situation. If a consumer purchases a product from you, whether you were the manufacturer or not, and they genuinely get hurt then product liability insurance will cover your legal costs, and if you are found to be at fault, will also cover the legal expenses of the consumer as well as their medical bills and any other damages they are awarded.

For this reason, anyone who manufactures, distributes, or sells any type of product should have at least one form of product liability coverage . It doesn’t matter how big or small your business is; failing to get this type of insurance could come back to haunt you.

product recall

Businesses that need product liability insurance

There are so many businesses across every conceivable industry that can benefit from product liability insurance. However, these are the businesses which are most at need of its protection:

Manufacturing

Whether it’s a car, clothing, or electronic devices that your company is making, if there are any defects in the manufacturing stage which lead to injuries or illnesses with consumers later on, you could be held legally responsible. It doesn’t matter whether you’re an individual craftsperson with handmade creations on Etsy (who may not even sell enough items to qualify for general business insurance), or you own one of the biggest factories in China; product liability can affect everyone who manufactures products.

Distribution

A large percentage of personal liability insurance claims involve distributors because they often assume that they are not responsible for any issues when shipping and handling someone else’s products. However, a manufacturer or retailer may say that when the product left them it was in perfect working order, so it must have been damaged and become dangerous during the distribution process. This means that they may push any lawsuits on to you, so you need to make sure your distribution business has comprehensive product liability insurance.

Product Design

If you are designing a new product, you need to take proactive measures to protect yourself or your company from potential lawsuits down the line. Of course, the first thing you need to do is make sure that your product is fully tested according to your industry’s health and safety regulations, and adding the right warning labels on your product to stop consumers from using it incorrectly. After that, you will need to get product liability insurance just in case something unforeseen happens that causes illness or injury to consumers. Unfortunately, there have been many cases of products which have been thoroughly tested and approved which later have ended up causing harm, so its vital that you are fully covered.

Retail

Retailers are also at risk since they must assume some responsibility for selling defective products that may later harm people. Whether you’re running an ecommerce store, brick-and-mortar shop, or even both—you’re likely at risk for product liability claims. And, while the risk of lawsuits is even greater for large corporations like Walmart or Best Buy, smaller retailers can also be sued. Not only will your business suffer financially if you get hit with a product liability claim (whether it’s warranted or not), but there could be legal repercussions that affect future sales and stocks as well.

Ecommerce

Although ecommerce businesses are still relatively new to the consumer market in comparison to brick-and-mortar shops, they now make around £250 billion in global revenue which makes them just as vulnerable for claims involving defective products. This means that whether you’re at home selling products online through an eCommerce platform such as Shopify, or running your own independent store on Magento, you need product liability insurance coverage

Food & Beverage Businesses

Whether you own a restaurant, a company that manufactures food items, or you have a fleet of pizza delivery scooters, there’s always some level of risk when dealing with physical goods that people eat and drink. Every year thousands of people file lawsuits against businesses in the food and beverage industry which end up costing companies millions of pounds, and cause potentially irreversible damage to their reputation. We all remember the fallout from the infamous horse meat scandal of a few years, and while this may be an extreme example, you need to make sure you are protected.

Healthcare

The healthcare industry is no stranger when it comes to product liability lawsuits because of defective medical devices and pharmaceuticals. This includes everything from faulty artificial heart valves to medicines that causes harmful side effects. The healthcare industry spends £20 billion on product liability claims every year, so you would be wise to invest in this type of insurance if you manufacture, distribute, or sell anything that is used in healthcare.

Cosmetic Companies

Although cosmetic companies are not required by law to carry out safety tests before selling their products, if you are involved in the cosmetics industry, it’s still crucial that you have some form of protection against potential lawsuits down the line. The failure rate for cosmetics is actually higher than most other industries at 21% which means there is a high chance that one day a consumer will complain about an allergic reaction or a side effect from using your makeup or body care items. Not only does this reflect badly on your company but it can also cause irreversible damage if it results in legal action being taken against you, not to mention the hefty fines and compensation payouts that you will be liable for.

A step-by-step guide to choosing product liability insurance

1. Make a list of all products you make, distribute or sell. There are many things can be potentially harmful if used incorrectly, or the wrong instructions or labelling are provided, so consider every product.

2. Think about the risks associated with these items and how likely it is for people to file legal claims against your company if someone is harmed. For example, food and beverage companies tend to get more complaints than those in other industries. Look for up-to-date statistics on which industries and product types have the highest number of lawsuit filings per year so you know where potential future liabilities may come from.

3. Choose an insurance policy based on factors like: cost; type of coverage offered (i.e. product recall, manufacturing defects); and time period that the policy is valid for.

4. Make sure you read through all of your insurance contracts carefully and understand exactly what they cover so you’re not under any false impressions about how much protection it provides.

5. Do some research on costs beforehand to ensure you are getting a competitive price because sometimes spending more doesn’t always mean better coverage; also check out reviews from past customers who have had similar products liability policies in the past to see if they were satisfied.

6. If possible, look at individual company case studies with examples of lawsuits involving defective products which were handled by different insurance companies as well as other related data such payout amounts and total legal fees involved.

What are the requirements for product liability insurance in the UK?

There are a number of requirements that need to be fulfilled by companies in order for them to get product liability insurance in the UK. These include:


 
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