Kristina Fox
Product liability insurance is one of the many insurance products available to small business owners. But what is it and what does it cover?
Below, we look at what product liability insurance is and consider different scenarios where it may be relevant to your business.
What is product liability insurance?
Product liability insurance is one of the options that can be included in a business insurance package. It can cover your business if someone makes a claim against you because you supplied, made or designed a faulty product or even gave it away for free.
If a customer was injured or suffered material damage to their property because a product malfunctioned, your business could be held responsible. Product liability insurance could cover the cost of defending a claim as well as any eventual payout that was awarded.
» MORE: A guide to business insurance
What does product liability insurance cover?
Product liability insurance covers the cost of compensation if a customer makes a successful claim against your business after they are injured or their property is damaged because of a faulty product you have supplied. Unexpected product faults that couldn’t be picked up through your quality assurance processes may also be covered.
For example, if you sold a meal to a customer and they later fell ill because it was undercooked – even if you didn’t make it – you could be held responsible and made to pay compensation. Product liability insurance could cover the cost for you.
You can pick the level of cover you want to take out depending on what would best suit your business and circumstances. Common limits range from £1 million to £5 million. Insurers will only pay out up to this preset limit in the event of a claim – covering compensation and legal fees combined – so you should ensure that the cover you choose is appropriate for the risks associated with your business.
What doesn’t product liability insurance cover?
There may be exceptions to your cover. These should be detailed in the policy wording or the terms and conditions. It’s important to find out about exceptions before you take out cover to help make sure that the insurance you’ve chosen fits your requirements.
For example, you may not be covered for claims of financial loss because of your faulty product, such as if a customer was injured and lost out on income because they couldn’t work. Your policy may only cover claims related to injury or damage to property. Product liability insurance also may not cover you if there is evidence of poor workmanship.
Some insurers may require you to stick to quality assurance processes – if you cannot prove you have done so, you risk invalidating your cover and you may not be protected against claims.
What’s more, product liability insurance won’t protect your business against claims made because of anything other than a faulty product.
For example, if an employee injured themselves while making a product, this would not be covered under product liability insurance. If the employee made a claim against the business and won compensation, you would likely only be covered if you had employers’ liability insurance.
Or imagine if a customer was picking up a product from your shop and tripped up the steps to the entrance. No faults in the product itself caused this accident, so you would not be covered by product liability insurance if the customer decided to make a claim against you for their injuries. Instead, public liability insurance could pay out for any compensation owed to the customer.
Should my business have product liability insurance?
Product liability insurance is not a legal requirement in the UK. The only type of business insurance that you may legally need is employers’ liability insurance. This is obligatory if you employ anyone outside your immediate family working in the UK.
» MORE: Employers’ liability insurance explained
That said, even though you don’t have to have product liability insurance, you may want to consider it.
If you sold, made, designed, or gave away a product that was faulty, you could face a compensation claim from a customer who was injured by it. You should therefore think about whether your business would be able to afford the cost of compensation if someone made a successful claim against you.
Crucially, your business can be held responsible for faulty goods even if you did not make them. If you change the product, import it from outside the EU or put your business’s name on it, you could be liable if it is faulty. You may also be held responsible if the original manufacturer cannot be identified or has gone out of business.
For example, imagine that your business imports phone chargers from outside the EU to sell in the UK. If a charger was sold to a customer but had a fault and gave the customer an electric shock, you could be liable – even though you did not make the product. Product liability insurance could cover the compensation costs owed to the customer if they made a successful claim against you.
How to get product liability insurance
You can typically buy product liability insurance as part of a larger business insurance package. It is sometimes sold in combination with public liability insurance, for example. You can buy it directly from an insurer, through a price comparison website or via a business insurance broker.
If you’re ready to get started with product liability cover, you can get a quote from our partner, Superscript. Head to our dedicated product liability insurance page to find out more.
» MORE: Different types of business insurance
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