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14 January 2021

What is Product Liability Insurance and Do I Need It?

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Understanding what product liability insurance means for your business is very important, particularly if your business manufactures or supplies goods to customers. At Brightside Shop Insurance, provided via One Insurance Solution, we have put together this quick guide to product liability insurance, who needs it and the scenarios you may want to have coverage for.

What is Product Liability Insurance?

Product liability insurance is a business insurance designed to cover the costs of compensation claims made against your business if a person has been injured or sustained property damage due to one of your products. You will very likely be liable if the product(s) in question were manufactured by your business. However, your business can also be liable even if the relevant product was manufactured by another company, or the products bear your company’s name or if you have repaired or refurbished them. If the original manufacturer of the products you sell cannot be traced, then your business may be held liable for  any compensation claims. As such, product liability insurance is an important coverage for many businesses that sell goods.

If, for example, you manufacture electrical equipment and faulty wiring causes a fire during standard use, you could be legally required to pay compensation for all and any damage caused. Product liability insurance would cover the legal fees of this process. This can extend to covering consumable products too, such as if you run a cookie delivery business and a customer blames you and your products for food poisoning.

Which businesses should have product liability coverage?

Due to the wide range of products it can cover, product liability insurance coverage is recommended for any business that:

  • Sells products with their business/brand name on them
  • Manufactures their own products to sell, including food/drink
  • Repairs, refurbishes or repurposes products
  • Imports products to sell in the UK
  • Sells products from a manufacturer that cannot be clearly identified or may have gone out of business

Any company that supplies products/goods should look to have products liability in place as although the claim could potentially be passed-on and you could be the first point of call for the consumer.  This does not have to be a retail business, for instance if you are a plumber who supplies and fits an electric shower, you should have products liability cover in case the shower causes injury or damage.

If these aspects do not apply to your business, then the manufacturer will ultimately hold liability. However, your business will still have to provide certain evidence, such as proof that the products were faulty when originally supplied to you.

Do i need product liability insurance?

Though not strictly a legal requirement, you may find that other manufacturers, suppliers or retailers you work with will require you to have product liability insurance in place. Otherwise, whether your business needs product liability insurance mostly depends on what you provide. If your business fits under the above examples and sells goods to members of the public, then product liability insurance is recommended as retailers can still potentially be liable in certain product liability cases. While you may not be directly responsible, you still have a duty of care towards your customers and product liability insurance coverage is usually an implicit part of that.

Businesses that provide services rather than physical products, such as consultancy or legal advice, will not normally need product liability coverage; they will require Professional Indemnity insurance instead. However, businesses that manufacture items such as tools or parts for other businesses should buy products liability insurance and will likely be contractually required to do so in some industries, such as the construction sector. If your business manufactures any products at all, whether B2B or B2C (business-to-consumer), product liability insurance is vital.

How can i reduce my product liability insurance cost?

By law, manufactured or sold goods are required to be safe for their intended use. Lower premiums on product liability insurance could therefore potentially be attained if you can demonstrate that your business may be less likely to be involved in a claimable incident. This could be achieved by accepting the following duty of care responsibilities, as your business would then be demonstrating to insurers that steps have been previously taken to keep its consumers safe and aware of any product risks:

  • Providing instructions on how to properly use products sold by the business, especially those you manufacture
  • Proactively monitoring safety of your business’s products and improving safety where possible
  • Providing warnings of potential risks through proper use of products and dangers through improper use
  • Responding swiftly to and taking early ownership of any safety concerns
  • Having an in-depth knowledge of the sources and safety of all the products your business sells and uses, if you are a retailer

With this information, you should know what product liability insurance is and whether your business is likely to need it. Product liability insurance can often be provided as part of any policy that has a liability aspect for example, Tradesmen Insurance, or Shop Insurance and our experienced insurance brokers will be able to help you get the ideal coverage for your business’s needs. Explore our Shop Insurance page and see how you could save with a quote today.

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