Recent Product Liability Insurance Issues

In September 2008, it was discovered that 22 brands of Chinese baby milk powder contained the industrial chemical melamine, leading to approximately 50,000 Chinese babies being reported to the Chinese health minister as falling seriously ill resulting from ingesting the contaminated products. 

Meanwhile, in 2007 alone, over 20 million Chinese-made toys were recalled for having excessive levels of lead-based paint on them as well as other unsafe parts, with Mattel’s Fisher-Price brand clocking up extensive media coverage as it was forced to make several recalls.

These recent, highly publicised cases serve to highlight how important product liability insurance cover is to manufacturers, wholesalers and retailers that may handle defective goods.  When products are found to be unsafe, retailers are the first in line for a lawsuit, liable under contract law.

Product liability insurance cover almost always goes together with public liability insurance

How Much Product Liability Insurance Cover Do I Need?

When taking out product liability insurance, customers are buying an aggregate limit.  Regardless of the number of claims, there is a maximum payout, meaning that it is important to consider the worst-case scenario when choosing a limit.  Businesses tend to be covered for a minimum of £2million but it is surprising how quickly this limit can be reached so good advice should be taken to ensure adequate product liability insurance cover is in place.

Extensions to Product Liability Insurance Policies

In addition to standard product liability insurance cover, a customer may wish to purchase a financial loss extension, such extensions are important. Product liability insurance cover will protect a business should it supply a defective product that causes injury to a person or damages to other property.  However, if there is not injury or damage but the third-party business suffers a monetary loss, it will not be covered unless financial loss cover is taken out.

Product recall cover is also recommended, particularly in light of increasing legislation.  There is also a greater awareness around product quality, more expectation that manufacturers will do something to recall a product if it is creating risk and greater policing of recalls – including applying sanctions if a recall is not implemented.  There is clearly a need for greater protection.

What Excess is Applied to a Product Liability Insurance Policy?

Excesses depend on the type of cover that is required.  For standard product liability insurance policies they are reasonably low (between £250 and £500 for property damage losses and no excess on injury claims).

If a financial loss extension is taken then it is a very different story, with a minimum excess of £5,000 being common.