Product Liability Insurance

18/06/2013 -- Mary Simpson
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Product Liability Insurance covers the cost of compensation to anyone who’s injured or whose property, including land, is damaged because of a fault in a goods and products sold, designed, manufactured or supplied by you.

Even if you didn’t manufacture a faulty product, your business can still be held liable to pay compensation if:

  • You put your business’s name on the product.
  • You repaired, renovated or changed the product.
  • The manufacturer has gone bust or you can’t identify them.
  • You imported the product from outside the EU.

Most businesses take out policies to cover them for compensation claims of between £1 million and £5 million.

As well as damages, this type of cover can meet your legal costs.

It’s usual for insurers to offer product liability as part and parcel of a complete public liability insurance package.

But it doesn’t normally cover the cost of recalling faulty items – you usually need to buy product recall insurance under a separate policy.

Product Liability Laws

Sale of Goods Act 1979:  A product must be of acceptable quality and do what it says on the tin.  

Whatever you sell, supply or even give away must fulfil the purpose the customer has been led to expect and the reasons that led them to buy it.

The Consumer Protection Act 1987:  Manufacturers are liable for death, injury, loss or damage caused by unsafe goods and products.

If the finished product has a defective part, both the product manufacturer and component manufacturer may be liable.

Other suppliers, such as wholesalers and retailers, are not liable unless they can’t identify the producer.

But customers can still sue retailers under laws on the sale of goods.

Toys, electrical goods, construction materials, fireworks, cosmetics and medicines are a few examples of products covered by specific safety regulations.

Visit Gov.UK for the Government guide to Product Liability and Safety Law.

The Association of British Insurers website has good advice on Product Liability Insurance for small businesses.