Although for some it may be pretty straightforward, there are a lot of companies that either don’t really understand product liability insurance or they don’t believe it is necessary, which is why it is often overlooked. However, it is one of the most important aspects of a company’s overall insurance program and it should be taken seriously.
If you haven’t already guessed by the name, product liability insurance is actually intended to protect your business from claims related to the manufacturing or sale of various products such as food, medicine, and other goods to the general public. Whether it is a manufacturing flaw, some toxic substances in the product, design defects, an injury due to misuse of the product, even if it is not your company’s fault, you may still be found liable for damages. Very often these compensations are so big that a lot of companies are forced out of business, just because someone misused your product and the warning label wasn’t “specific” enough. And I’m not even going to mention the effect that this might have on the reputation of your company.
But, the two main reasons why you might want to get product liability insurance are knowing that if you get sued for some damage allegedly caused by your product, the insurance company will pay for the attorneys hired to defend you and the settlement costs of the lawsuit, and the second reason is the if you are planning on doing business with a retailer, you will have to show them evidence that your product has liability insurance.
So how do you know if your company requires product liability? Sometimes even importing or repairing a certain product is enough to make you liable. Here are some simple examples where product liability insurance is essential.
- If you manufacture a certain product
- If you commission the manufacture of a product or your company’s name appears on the product
- If you are using components or materials from an unidentified supplier
- If you use imported components and materials that don’t meet Australian standards
It is very important to understand that when you are selling goods, they are required by law to be safe for their intended use and accepting those responsibilities shows that you care for the safety of your customers and you want to keep them aware of any risks regarding your product. This is why you should always provide clear instructions for proper use of the product, warnings of potential risks through proper and improper use, taking proactive measures in measuring and improving the safety of the product, and so on.
Overall, product liability insurance can really help your business. You can either get a complete of-the-shelf insurance package or you can have a specialist decide on the level of cover you need and have a tailored solution.