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Any product that your business manufactures, sells or repairs is your responsibility, if something goes wrong and they cause injury to your customers or damage to their property then a claim for compensation could be made against you.

It’s therefore important to ensure you are covered should your products cause injury or damage to a person or their property. Products liability insurance covers you in this instance (up to certain limits).

In this complete guide to product liability we take a look at the most frequently asked questions about Product Liability.

What is products liability insurance?

Put simply, products liability insurance can help protect businesses that produce, sell or repair products if they are deemed potentially defective or faulty having caused injury or damage to property. It covers legal costs associated with claims for those that are deemed to be at fault as well as compensation awards that result.

Products liability insurance is there to protect your business from claims for legal and compensation costs resulting from injury to people or damage to their property caused by products you manufacture, sell or repair

In the eyes of the law, anyone who is involved in the supply chain of a defective product can be taken to court, which means wholesalers and retailers, as well as manufacturers, should take the necessary precautions. Claimants injured from a faulty or defective product can sue for any losses they have incurred as a result of the businesses’ neglect.

In assessing the safety of a product, the court will bring into question, amongst other things:

  • All aspects of the marketing of the product
  • Instructions and warning labels
  • What might reasonably be expected to be done with the product

Do I need products liability insurance?

Whilst products liability insurance is not required by law, it is strongly advised for producers, distributers, retailers or repairers of products. With any product, there is a chance of an error or omission happening at any stage from design to distribution, thus, it is better to be covered in case a problem arises.

In the event of a fault causing a customer injury or damaging their property, products liability insurance is there to protect your business against the financial impact of a claim. Claims of personal injury arising from faulty products can be particularly expensive, sometimes accumulating millions in legal fees and compensation pay-outs. In the event that you aren’t responsible, you may still incur legal costs while defending yourself.

Who needs products liability insurance?

  • The manufacturer or producer of a product
  • Any party who has put their name, brand or mark on a product
  • Any person who has imported the product into a member state from outside the EU
  • Any person who repairs or reconditions the product
  • The supplier of the product

A faulty product which causes injury or damage could open you up to sizeable claims. As a business owner, it is always good practice to ensure you are protected should you be liable to pay any claims for compensation. If you are planning on working with other companies they may request that you have the right products liability cover in place before they do business with you.

What does it cover?

The extent of your cover will depend on your individual policy. There are areas of cover, however, which often feature as part of a products liability insurance policy.

Products liability insurance covers you for personal injuries and damage to property caused by your products to third parties. It also covers you if the products you have sold were sourced from outside the EU or if their manufacturer has gone out of business. Products liability insurance shouldn’t be confused with product warranties or guarantees, which can provide protection in the event of a product failing to perform its intended function to the expected standard. If a product causes someone an injury or damages their property, the claim would be covered under products liability insurance.

To make sure you understand what your insurance cover includes, you should thoroughly read your policy wording or consult your insurance broker for professional guidance.

How much products liability insurance do I need?

There are a number of factors to consider before deciding how comprehensive your products liability policy should be, namely, what type of business you own and what kind of products you produce. For instance, if you are a clothing manufacturer, the risk of injury or damage to property would be far less than if you were manufacturing fireworks.

The amount of products liability insurance you will need depends entirely on the products you manufacture, sell or repair. Most SME package insurance policies will include a standard limit of up to £2million (although this can be increased) however this may include restrictions depending on the intended use of the product and/or the target destination.

The USA and Canada are often excluded from products liability insurance cover, so if you plan to sell your product in these countries you will need to contact your insurance broker to discuss your options. In these circumstances, you may need to arrange additional cover.

One thing to remember is that compensation pay-outs can contrast in size considerably. For instance, claims for serious injuries and extensive property damage could run into the millions. Therefore, you should consider the limit on your policy, especially if you think your product has the potential to cause significant damage if the worst happens.

What other covers does a small business need?

Products liability insurance isn’t the only recommended cover for businesses: there are a number of other covers which can help to protect your assets and liability towards others. Taking out the right insurance for your business can give you peace of mind to focus on what really matters – your business.

As a business owner, it’s important to evaluate all the risks to your business. By considering what could potentially go wrong, will help you establish the covers you need most.

If you own a shop, office, pub or hotel for instance, you will have valuable assets and property to protect; so this should form a key part of your business insurance.

Protecting those around you is also essential. Public liability insurance protects your business financially if someone has a slip, trip or fall or sustains an injury as a result of your business activities. It also covers accidental damage to their property if something goes wrong while you work.

Similarly, if you’re an employer then you’re required to take out employers’ liability insurance by law. You have a duty to protect your staff while they work and they could pursue you for compensation if they had an accident and sustained an injury. Employers’ liability protects your legal liabilities and your business financially in these circumstances.

There are a number of other insurances available including legal protection, business interruption, professional indemnity and many more. Having a bespoke insurance solution that’s tailored to your individual needs is essential for any business owner.

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