Why Product Liability Insurance is critical for Small Businesses
Product Liability Insurance protects your business against financial loss relating to claims and legal costs for actual or alleged personal injury or property damage arising from goods or products sold, imported, distributed, handled, distributed, repackaged or repaired by your business.
Once the item is out of your control, it becomes your product. For example, if you are installing a solar system and damage the roof, that’s public liability. Once you leave the clients property, any damage caused by your work is product liability. So, if your business does any of these activities, it’s essential that your business has Product Liability Insurance.
How does Product Liability Insurance Protect your Business?
Regardless of the type of products or the industry you’re in, your customers expect that these products will be safe to use and free from defects. So, if your customers suffer personal injuries or property is damaged because of your goods or products, they will look to your business to compensate them. As a result, your business can incur significant financial losses, for the legal costs, any court awards or out-of-court settlement. Your reputation can also be damaged, even if the allegations are eventually not proved. A product liability insurance policy provides financial security against the unknown.
Product liability can also include the costs and expenses to recall unsafe or potentially dangerous goods or products. While you may do everything possible to ensure that your goods and products are safe and free from defects, things can go wrong. This means that most companies that sell goods and products can potentially be accused of causing harm or damage. Of course, your level of financial risk, does depend on the goods or products you sell, but the risk still exists, even if you simply sell birthday cards.
In fact, even if you stop selling or discontinue a product you are still liable for the injury or damage caused and people can still be sued, if the item causes harm or damage. It’s important to note that products include goods that you have repaired or serviced, so your workmanship. This is particularly relevant for trades people whose product is actually their work. For example, if you repair shoes and the customer slips over, because the heel broke a few days later, then that’s likely to lead to a product liability claim for the person's injuries when they fell.
Another area for consideration is when you import products from overseas and they don’t comply with Australian Standards. This can happen for various reasons including the overseas manufacturer mislabels the goods. If you sell, distribute or repackage these products and they cause personal injury or property damage, then your business can be held responsible, along with the manufacture or exporter.
What does Product Liability Insurance actually cover?
Protection against manufacturing faults: For example, a customer is injured when the protective guard of an angle grinder flies off when it’s used, and the person’s hand is injured. A case can be made that the guard was not safely attached during the manufacturing process.
Protection against design defects: Given the same circumstances as above, a case may be made that the guard of the angle grinder flew off because it had been incorrectly designed.
Protection against incorrect warnings or instructions: In the same angle grinder case, it may be that the customer removed the safety guard and was injured. A case can be made that the instructions did not include a warning against the removal of the guard.
As you might have realised, product liability impacts nearly everyone, so it makes sense to talk to a specialist in the area. To discuss whether your business needs Product Liability Insurance, talk to Risk Guidance Insurance today.
General Advice Warning The information provided is to be regarded as general advice. This type of insurance product is designed for small and large businesses, who want to be covered against financial loss due to injury or damage arising from goods or products sold, imported, manufactured, installed or repaired, resulting in a product liability claim. We recommend that you consider the suitability of this general advice, in respect of your objectives, financial situation and needs before acting on it. You should obtain and consider relevant product disclosure statement(s) before making any decision to purchase this type of financial product.