Risk & Insurance
What is Product Liability Insurance & do I need it?
Our ultimate guide to Product Liability Insurance

Product Liability is an insurance policy designed to cover businesses that deal with products as part of their business, such as, manufacturing, supplying, importing, installing, or selling products. It is mainly applicable for businesses that are involved in the sale or supply of tangible products. Product Liability insurance is usually sold with Public Liability insurance, as a single policy. 
 

What does Product Liability insurance cover?

Product Liability Insurance covers your business if a member of the public alleges a product from or related to your business caused them injury or damaged their property. This could be due to a defect in a product or failing to disclose key information about the product. As unlikely as this might sound, sometimes even simple gestures like giving out complimentary items can lead to Product Liability claims.

For example, say as part of an offer you provide a free electronic gadget to every new client. But for one client, the gadget causes an electric shock, and the client suffers an injury. This client may take legal action against you for the injury they suffer, and you might quickly find yourself with significant legal bills and compensation to pay. Product Liability insurance in this case would help cover the cost of legal fees to defend you, as well as compensation you might be required to pay to a third party. 

What does Product Liability Insurance not cover?

As with most insurances, there are events which are not covered under Product Liability Insurance. Some of these events may be intended to be covered by other insurance policies. For example, Product Liability will not provide cover if your business provides professional advice or a professional service, and a client alleges your advice or service caused them a financial loss. A Professional Indemnity Insurance policy is the type of insurance which is intended to cover claims of this nature. On the other hand, there are also some incidents which are excluded under most insurances, for example, deliberate damage knowingly caused by you. Some other events which are specifically not covered under Product Liability include:

  • Advertising injury such advertising incorrect price of products, or failure of products to conform with advertised performance or quality.

  • Contractual Liability, which refers to liability you’ve accepted under a contract or agreement which extends beyond liability that would usually apply under law.

  • Loss of Use of products resulting from the failure of the product to meet the level of performance, quality, durability, or fitness represented by you.

 

What’s the difference between Public Liability and Product Liability Insurance?

Although Public and Product Liability are both intended to provide cover for claims arising from allegations of personal injury and property damage, the key difference lies in how the injury or damage occurs. Public Liability will apply to situations where you are held responsible for personal injury or third-party property damage during the course of your business activities, and does not necessarily require a product to be involved. The most common example used to explain the cover provided by Public Liability insurance is where someone visiting your business premises trips over something, suffers an injury, and takes legal action against you. Product Liability, on the other hand, relates to claims where the personal injury or third-party property damage is alleged to have occurred as a result of a product your business has produced, supplied or sold.
 

How much does Product Liability Insurance cost?

The cost of Product Liability will depend on several factors, including the nature of your business. Some of the aspects of your business usually used to calculate insurance premiums include the industry you operate in, the location of your business and the size of your business– you can read more about how these factors can determine your premium in our article. When it comes to Product Liability insurance, one of the most significant areas that might impact your premium is the nature and type of products your business deals with. For example, if you make a product that is considered high risk, or is complex, then your premium may be higher compared to a company that sells simpler products.
 

Is Product Liability Insurance compulsory?

In Australia, few forms of insurance are required to be held by law – some compulsory forms of insurance include Compulsory Third Party (for Motor Vehicles), Worker’s Compensation, and Professional Indemnity insurance for certain occupations. Product Liability Insurance is not a compulsory form of insurance. It is however a cover worth considering if your business is involved in manufacturing, supplying, installing, or selling products. Some events are impossible to predict, and if you do find yourself facing a claim for personal injury or property damage from a client due the use of your product, the financial strain of legal fees and compensation may be difficult. Furthermore, depending on how you distribute your products, some suppliers may require you to hold Product Liability Insurance as part of their contractual arrangements with you. 

 

Do I need Product Liability Insurance? 

To decide whether your business needs Product Liability Insurance, you should ask yourself whether your business involves dealing with tangible products. Remember, it is not just about whether you sell or manufacture them, but rather any involvement with tangible goods could put your business at risk of being held liable for personal injury or property damage caused by them, even if you’re simply servicing or repairing items.  
If your business does not manufacture, produce, supply, install, import or sell tangible products, then you are unlikely to require Product Liability insurance. If the answer is yes, however, then Product Liability insurance is a cover to consider. Without this cover in place, if a product you manufacture, sell, install or supply does cause injury to someone, or damages their property, and they take legal action against you, navigating through the complexities, and the accompanying financial burden could cripple your business’s livelihood. If you are unsure whether your business might need this cover, an insurance broker can help you decide by assessing your business and taking you through your options.