If you run a business, then it is likely that you will need a range of small business insurance covers to protect against the different risks that you face.
If you make or sell products one important insurance product to consider is product liability insurance.
What is product liability insurance?
Product liability insurance is an insurance product which is designed to provide cover for the cost of compensation claims that are made against your business by someone who is injured, or has damage caused, by a faulty product that your business designed, manufactured, or supplied.
What does product liability insurance cover?
All product liability insurance policies will vary so it will be important to read the full policy wording so that you fully understand the cover you are buying.
But generally, a product liability insurance policy will cover compensation costs linked to
- Personal injuries caused by your product
- Damage to or loss of property caused by your product
- Issues linked to your product which were unforeseen and not able to be identified by your quality control processes
Your policy is also likely to cover the legal costs associated with these types of claims.
Obtaining product liability for some types of products can prove difficult, however. A good example of this is the vape industry where the availability of product liability insurance is severely restricted in the UK. So, it is vital that you are very clear with your insurer (or insurance broker if you work with one) about the products that you design, manufacture or supply to your customers to ensure you get the right cover for your business.
Which businesses need product liability insurance?
Does your business make or sell products? If the answer to this is yes, then it is likely that your business would benefit from taking out product liability insurance.
Keep in mind that whilst manufacturers of a product are likely to face the highest level of responsibility for a faulty product, you can also be held responsible in some circumstances even if you are not the manufacturer. For example, the manufacturer cannot be traced or has gone out of business, if your business name is on the product or your business repairs, refurbishes or changes a product.
Whilst product liability insurance isn’t a legal requirement under UK law, costs of compensation claims can be significant and put huge pressure on your business if you do not have adequate insurance in place. So, this is certainly something to keep in mind when deciding whether you need this cover. It is also true that some suppliers who work within your supply chain may require you to have product liability insurance in place before they will work with you.
How much product liability insurance do you need?
Again, all policies will vary in the amount of cover that they provide but many businesses will likely require up to £5million of cover. You may require more cover if you run a larger business.
You should determine how much cover you need based on your individual business.
How can your business understand if you will be liable for a claim relating to the products you sell?
It will be important to understand if your business could be liable for a claim which arises due to an issue with a product that you have either made or sold. This will help you to understand the risk that your business faces in relation to liability.
Refer to the product safety advice published by the Government for full details on the rules that you must follow in order to comply with the relevant laws related to product safety and to ensure that you keep your customers safe.
Under the Consumer Protection Act 1987, manufacturers, or those involved in the supply chain of a product, could be liable for their products if the product is unsafe and causes personal injury or death to any person, or damage to private property. And you could be sued for compensation.
Should you also consider product recall insurance?
Product recall insurance is a separate cover but one which your business may want to consider in conjunction with product liability insurance.
Imagine if there was a defect or safety risk with one of the products that you had manufactured or sold. If your product had to be recalled, you could face both financial implications through loss of income and also reputational damage.
Product liability insurance is designed to provide cover in instances of actual harm caused by your product. It won’t extend to the potential for harm to be caused by your product.
Product recall insurance can extend cover to areas not covered by product liability insurance such as:
- Recall & replacement costs
- Business interruption
- Crisis management and help managing your brands reputation
So, if your business operates in a sector where there is risk of widespread fault or contamination you may also want to consider product recall insurance.
If you are reviewing your small business insurance and aren’t sure what cover you need, refer to our guide to business insurance for a handy visual guide. Or you can chat to our teams on 020 8290 9080 or email us at business@anthonyjones.com and we will be more than happy to help with any questions you may have.
