A Guide to Product Liability Insurance

What is product liability insurance?

Product liability insurance is essential cover for any business that sells or manufactures products. It is rarely sold as a standalone product but is often added on to a public liability insurance policy.

Product liability insurance protects your business should a customer incur damages as a result of a fault with the product you have provided them with. It covers liability for compensatory costs, legal fees and any other costs associated with the case. It's crucial to ensure that you are covered should the unthinkable happen and a customer is injured as a result of a faulty product sold by your business.

A compensation claim for a faulty product can be brought against a manufacturer any time within three years of using the product, and in some cases even longer. This means that you should keep your cover going in gaps of manufacturing or if you stop trading altogether.

Each claim is treated on a case by case basis and has no legal limit for much it might costs. Cases are calculated based on the severity of the individual case and scale of loss. This means you must carefully consider the level of cover you need so as not to be underinsured.

Do I need product liability insurance in the UK?

You don’t need to manufacture a product in order to require product liability. Importing and repairing in some cases is enough to make you liable. Below we look at some of the situations were a business might need product liability insurance.

What kind of businesses need product liability insurance?

  • Any company that sells a product with their business or brand name on it
  • Any business that repairs or repurposes a product
  • Any firm that manufactures a product
  • Any business that imports products outside of the European Union for sale in the UK

In addition to this, if the actual manufacturer has gone out of business or cannot clearly be identified then the seller of the product could be held liable.

Whilst the manufacturer will hold ultimate liability if these aspects don't apply to your business you, as the retailer will have to provide certain evidence, such as that the products were faulty when supplied to you.

Not every business requires product liability insurance, it depends on what your company provides. For example, a training and consultancy business will provide a B2B service rather than a product and consequently will not require product liability insurance. However, a business that manufactures tools for firms in the construction industry, for instance, will undoubtedly require manufacturing liability insurance.

Am I a manufacturer or a retailer?

A business can be both or one or the other. This depends on the business model and who their customers are. We will talk more about the responsibilities of each in the next section but first let’s understand exactly which category or categories might apply to you.

The largest portion of responsibility towards product liability falls on the producer of the product. This can include:

  • Manufacturers and retailers that supply own-brand products
  • Any business that repairers, alters or services an existing product
  • Someone who repurposes or rebrands an existing product
  • Importers of products from places where the safety requirements differ from the country it is sold in

Retailers and distributers such and shops and sellers are not usually directly responsible in a product liability case but do still have a duty of care to their customers.

Duty of care for selling goods

When producing or selling goods, by law, they are required to be safe for their intended use. By accepting the responsibilities here it can also be shown that a level of care has been taken to keep the consumer safe and aware of any risk whilst using the product.

  • Providing instructions on proper use
  • Providing warnings of potential risks through proper use and dangers through improper use
  • Taking a proactive approach to monitoring and improving safety
  • Taking early ownership should safety concerns be found.
  • Retailers should make reasonable steps to know the sources and safety of all the products they sell and use

What does product liability insurance cover?

Product liability insurance covers against a compensation case brought against a producer for loss, damage or injury, which can be made any time within three years of using the product. In some cases this can be longer. There is no upper limit to how much the claim can be and is calculated against the severity of the individual case and the scale of loss.

If a faulty product is widely distributed and has wide scale affects the compensation costs can easily be in millions. Even compensation to an individual customer who suffers loss of earning for six months can cost thousands of pounds. This makes product liability insurance a vital part of the protection for your business as well as part of the safety commitments you make to your customers.

How much product liability do I need?

It is your responsibility as a business to decide upon the level of cover required. Some products may be more prone to risk than others, so take care to ensure that any policy you purchase is adequate for your needs. Common considerations include:

  • Compensation claims – Is the policy sufficient to cover a compensation claim if your product causes injury or property damage?

  • Contractual obligations – Do any contracts you have with you clientele specify a minimum level of cover?

Things to consider when buying product liability insurance

  • Exclusions - check to see what your policy doesn't include or explicitly excludes to ensure that you have the right cover for your business.

  • Stipulations - the product liability policy might include stipulations with regards to quality control - you will need to adhere to these to ensure you're covered.

Product liability insurance from Towergate

Here at Towergate we offer flexible product liability cover to suit your business. For more information see our product liability insurance webpage or call us on 0344 346 0409.

About the author

Mike Stephens is a respected senior industry professional and Fellow of the Chartered Insurance Institute (CII) with well over 40 years’ varied experience in the commercial insurance sector as a director, underwriter, and operational improvement manager.