The public easily understands the concept of product liability because defective products have been regularly making the headlines. The most common scandals are food-related, from the issue of salmonella to tainted baby formula. Other risks that are highly commented upon are fires caused by defective batteries. In this context, most companies selling products are aware of the risks and the necessity to cover them.
PRODUCT LIABILITY INSURANCE
What does product liability insurance cover?
Product liability insurance protects against claims of personal injury or property damage caused by products sold, supplied or repaired by your business, and occurring outside of your premises. (If the damage is caused within the premises, then it is covered by the public liability insurance.) It typically protects manufacturers, distributors and retailers. Product liability insurance covers legal fees as well as compensation that may be result.
What is the maximum amount of cover I should have?
If this insurance is not stated in your distribution contracts, then you need to consider the potential claim amount for personal injury or property damage caused by your product. Also, the insured amount should be in line with the company turnover as insurers will be cautious of the risk if the insured sum and sales figures do not correlate.
How much does it cost?
Product liability insurance is usually a percentage of the annual turnover, but many factors affect the rate. These include the type of product and the history of the claim, the risk presented by the product, size of your business, production standards, certifications, area of distribution etc.
Is product recall included in the product liability?
Product recall involves recalling products from the market following the discovery of safety issues arising from a defect in one or more of the products. The expenses incurred in recalling products is not covered by the product liability insurance. It can, however, be added as an extension or as a stand-alone policy. Product recall is more difficult to underwrite as the risks are much higher.
Is product liability insurance compulsory?
It is your legal obligation that your product be safe for your consumer. However, product liability insurance is not compulsory in Asia and most parts of the world. If you are exporting your product to the USA or Europe, it is most likely that your client will require an insurance policy to protect against any claims there. Even if you have no obligation, and the risks are not obvious, it is wise to insure your product. Despite all precautions, there are chances that things may go wrong, especially if your product is sold to the general public. Moreover, even if the court considers your product as free from causing any harm, you would have had to spend time and money in order to protect the interests of your company.