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Product Liability Insurance Explained

Does your business, make, import, sell, distribute, repackage or repair products, if so, you can be legally liable for personal injury or property damage, as well as any resulting financial loss due to faults or problems in the product.

Do you operate a business from home? If you do, then it’s important to know your home insurance doesn’t automatically cover product or public liability exposures.

What is product liability insurance?

Product liability insurance is different form public liability insurance. Product Liability provides cover for legal defence costs, as well as any damages awarded by a court relating to injury or damage caused by your products. As mentioned, products include anything that you import, distribute, wholesale, relabel, repackage, or repair.

Under the Australian Consumer Law (ACL), importers are considered the manufacturers, giving them an extra level of responsibility, mainly because it can be very difficult for customers to make a claim or sue an overseas company.

Examples of claims include, hazardous toys injuring children, phone recharges that cause house fires, salmonella in food or faulty airbags in cars, causing injuries to the customer that purchased the item or the person using it.

So, taking out product liability insurance as protection against potentially having to pay legal defence costs that can amount to tens or even hundreds of thousands of dollars, plus pay damages awarded by a court, is a great way to manage that financial risk for a fixed amount each year

Product safety issues that may affect your insurance cover

Product safety is always a high priority for manufacturers, importers and sellers of goods. The General Liability Report from Wotton & Kearney lawyers provides topical examples of product safety issues that have risen since the pandemic.

Product Liability claims regularly make heading lines, recent cases include, injuries caused by medical devices, IUD, pacemaker and implants; failure of Takata car airbags; salmonella in lettuce etc.

Another relevant example was the global shortage of alcohol-based hand sanitisers which resulted in the importation of methanol so that local businesses could manufacture this product in Australia. Subsequent product safety concerns led to a 2% standard being imposed on methanol. In addition, there’s the case against Amazon as a distributor of consumer products and whether they’re liable for the products sold on its site. This is particularly relevant given that many small businesses have moved into the e-commerce space since the pandemic.

Yet another example of current product safety issues is the regulation of face masks that are intended to protect against disease. Considered as medical devices, the TGA regulates face masks under the Therapeutic Goods Act 1989. This means that importers, suppliers and manufacturers of face masks have obligations under this Act.

All these examples demonstrate the importance of product liability insurance to businesses that supply, sell or manufacture goods sold to consumers and other businesses.

Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.

A business insurance pack can provide cover for your business premises and contents, against loss, damage, theft or financial loss from an insured interruption to the business.

Purchase up to six products under one Business Insurance Package. 

Product safety is always a high priority for manufacturers, importers and sellers of goods. The General Liability Report from Wotton & Kearney lawyers provides topical examples of product safety issues that have risen since the pandemic.

Product Liability claims regularly make heading lines, recent cases include, injuries caused by medical devices, IUD, pacemaker and implants; failure of Takata car airbags; salmonella in lettuce etc.

Another relevant example was the global shortage of alcohol-based hand sanitisers which resulted in the importation of methanol so that local businesses could manufacture this product in Australia. Subsequent product safety concerns led to a 2% standard being imposed on methanol. In addition, there’s the case against Amazon as a distributor of consumer products and whether they’re liable for the products sold on its site. This is particularly relevant given that many small businesses have moved into the e-commerce space since the pandemic.

Yet another example of current product safety issues is the regulation of face masks that are intended to protect against disease. Considered as medical devices, the TGA regulates face masks under the Therapeutic Goods Act 1989. This means that importers, suppliers and manufacturers of face masks have obligations under this Act.

All these examples demonstrate the importance of product liability insurance to businesses that supply, sell or manufacture goods sold to consumers and other businesses.

Guarantee of Acceptable Quality and Fit for Purpose

The Australian Consumer Law (‘ACL’) has been in place since 2010. It’s the principal consumer protection law and applies the same in all States and Territories. It has recently been updated to apply to any consumer, which is a person of small business buying or selling goods for up to $100,000, that are used for ordinarily used for personal or household use. Such as solar hot-water systems, cars, electrical cables or alarm systems. The practical impact on importers, wholesalers, distributers and retailers is that Consumers or small business have a Guarantee that the goods supplied to them are acceptable quality and fit for any purpose that the customer said they were purchasing the goods for. If the item is not suitable, defective or causes any loss or damage, the seller is responsible. The ACL also says that importers or Australian distributors of overseas companies are the manufacture under Australian Law.

To discuss Product Liability and insurance needs, talk to your local insurance adviser.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.


Insurance Advisernet, ABN 15 003 886 687, AFSL 240549

This article originally appeared on Insurance Advisernet News and has been published here with permission.

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