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Like a lot of businesses in Australia, you strive to create quality goods for your customers.

However, we all know there’s no such thing as a perfect and infallible product. Faults have the potential to cause injury and damage to your customers, which could cost you a substantial amount of money in legal fees.

Whether your business builds a product from scratch, is involved in its basic assembly or just sells it to customers, it could be liable for any incidents where the product causes harm, loss or damage to customers. Product liability insurance* can help minimise the legal setbacks your business may encounter.

What is product liability insurance?

Product liability insurance is designed to protect businesses in the case of their products causing injury or damage to customers. It covers the legal fees that may arise and is generally an important consideration for companies that are involved in providing products to the public including manufacturers, wholesalers and retailers.

These policies are generally part of a public liability insurance policy.

How does product liability insurance work?

Product liability insurance works as a safeguard for business owners since it can help cover various instances where a product could cause damage or harm. If a customer claims injury or loss caused by your business’s product, your product liability policy will step in to cover the cost of the claim.

Fire extinguishers on a wall.

For businesses, product liability insurance can cover various situations where a product can negatively impact customers. These can include:

  • personal injury/illness (e. when customers are harmed as a result of your product). For example, when products malfunction and people are injured, or when food is contaminated and your customers fall ill.
  • property damage. The result of a third party’s property being damaged by your product.

What doesn’t product liability insurance typically cover?

Like any insurance product, there are some cases where your business may not be covered. The following are some common exclusions in product liability insurance policies:

  • blatant deception about your product before getting insurance. If you lie about elements of your product to your insurer, you’re likely in breach of your policy;
  • undocumented changes in the design of your product. If you make significant changes to your product without notifying your insurance provider, your policy may be void;
  • bad advice regarding the product given by you or your employees. This includes safe ways to use the product. If the advice pertains to misusing the product, you may not be covered for the consequent damages;
  • products that produce or include asbestos. Asbestos is a hazardous chemical, so policies are unlikely to cover it; and
  • costs associated with recalling your product. However, this may be offered by your provider as an optional extra instead.

Do I need product liability insurance?

You should never assume that your product, no matter where on the supply chain you sit, is infallible. Product liability insurance is a good idea to consider for every business that provides products for public consumption, from sole traders to manufacturers.

Product liability insurance also deals with more than a product breaking or malfunctioning. In 1998, the Australian Competition and Consumer Commission (ACCC) won in court against Glendale Chemical Products Pty Ltd, after it was determined that Glendale Caustic Soda wasn’t labelled correctly. The mislabelling ultimately led to injury. This case shows that it’s not always the most obvious mistake that can lead to damages.

With this in mind, it’s important to consider what products you make and whether product liability insurance is right for you.

Frequently asked questions

How much does product liability insurance cost?

You’ll struggle to find two businesses that are the same, which is why premiums vary across the board. It’s difficult to pinpoint a specific cost for product liability insurance since there’s a variety of influencing factors that can affect your premium:

Type
The type of product your business manufactures or sells will impact your premium. If you make products that could be determined as high risk, your insurance premiums may be higher.

Size
The size of your business can also be a factor in the price of your premium. A small business may pay less since they may be distributing less product.

Value
Companies with significant net worth may, in turn, have a higher premium to pay than smaller businesses because high value suggest high sales levels.

What’s the difference between public and product liability insurance?

The two often go hand in hand, with Product Liability being included as part of a Public Liability insurance policy but provide cover very different things. Product liability, as we’ve already discussed, covers companies for when their product causes harm or damage to a third party. Public liability insurance covers companies when they fail in their duty of care to the public.

To help explain this further, let’s use an example. Linda sells homemade soaps but hasn’t included one of the ingredients in her product’s labels. One of her customers is allergic to that ingredient and ends up in the hospital. Because Linda had product liability insurance, she’s covered for the hefty legal fees and compensation that results from her customer’s claim against her.

In another scenario, Linda opens a shop for her soaps but fails to secure the shelving she uses to display her products properly. The shelving collapses and injures one of her customers, whose claim is covered by Linda’s public liability insurance.

Is product liability insurance compulsory?

Product liability insurance isn’t required by law. That doesn’t mean you shouldn’t consider taking out a policy when insuring your business. Product liability insurance can go a long way to protecting your business if someone brings a claim against you.

Should I consider any other insurance for my business?

Along with product liability insurance, your business could benefit from other types of business insurance, including:

  • public liability,* which is designed to protect you and your business in the event a customer, supplier or a member of the public brings a claim against you due to their being injured or sustaining property damage as a result of your negligent business activities;
  • management liability,* which is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business; and
  • professional indemnity,* which is designed to respond to claims against your business for losses caused by actual or alleged negligent acts or omissions carried out in the provision of your professional service or advice.

How to get product liability insurance

Whether you’re starting a new business or just reviewing its current cover, you can investigate product liability insurance by merely comparing your options.

Our comparison service is a great place to start. Just enter your profession and some details about your business to compare a range of policies and get a quote – all at no cost to you!

*As with any insurance, cover is subject to the terms, conditions and exclusions outlined in your policy document.  The information provided on this webpage is general only and should not be relied upon as advice.

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