What is Product Liability Insurance?

In product liability insurance terms, a product is any physical item that is sold or given away. Whilst product liability insurance is not compulsory, unlike for example motor insurance or certain types of professional indemnity insurance, it is an essential protection for any company undertaking the manufacture or supply of goods to third parties. The policy provides cover for legal liability in respect of personal injury or damage to property resulting from the sale or supply of products specified in the policy. The policy will usually also cover legal costs.

Product liability insurance can be set up as a specific policy, but it is usually included as part of a general liability insurance policy which also includes public and sometimes employers’ liability. 

Why is Product Liability Insurance important?

Under the Consumer Protection Act 1987, the supplier or manufacturer of the product that leads to a loss is held responsible for any damage that the product might have caused to the customer or property.

The General Product Safety Regulations 1994 amends the Consumer Protection Act 1987 by widening its scope and places a general duty on all suppliers of all consumer goods to supply products that are safe in normal or reasonably foreseeable use. Most of the pre-existing consumer protection law also still applies and legal action can be taken if goods purchased are not of ‘satisfactory quality' or are not 'as described' by the seller. In addition goods must be fit for the purpose for which they were sold and must have adequate safety.

Awards for damages and litigation costs can be difficult to predict and very substantial, and insurance against such risks is vital for any business.

If you supply a faulty product, claimants may try to claim from you first, even if you did not manufacture it. You'll be liable for compensation claims if:

• your business' name is on the product
• your business repairs, refurbishes or changes it
• you imported it from outside the European Union
• you cannot clearly identify the manufacturer
• the manufacturer has gone out of business

Otherwise, the manufacturer is liable - or the processor, where the product involves parts from multiple manufacturers.

Click here for further details about the importance of product liability insurance.

Product Liability Insurance for Technology Risks

Who should have Product Liability Insurance?

Every business involved in the manufacture or supply of consumer products should take out suitable product liability insurance. Product liability insurance protects the manufacturer or supplier against consumer’s claims should the product that they manufacture or supply cause damage or injury.