Product Liability Insurance provides protection if a product your business has manufactured or sold causes accidental harm to a customer or employee. This could range from contaminated food products causing illness, to a hairdresser mixing up bleach and shampoo.
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Whether you buy, sell, manufacture or work with products, this policy can cover:
- Bodily injury to a person
- Loss of or damage to property
- Legal expenses
Firms that need protection against liability arising from defective products include manufacturers, suppliers, retailers or repairers of goods.
This cover typically protects against your legal liability to pay compensation to third parties arising out of any product you have sold, supplied, repaired, serviced or tested.
Products may be sold with the intention that they be used within the UK, but could be subsequently exported and cause injury or damage abroad.
Wordings may vary but the intention is usually to cover injury or damage occurring anywhere in the world provided the products or services were supplied from Great Britain, Northern Ireland, the Channel Islands and the Isle of Man.
Insurers typically exclude products knowingly exported to North America, due to higher damages, legal costs and likelihood of claims.
The policy covers liability arising from products once they have left the policyholder’s custody or control. Injury or damage caused by products before this time would be Public Liability claims.
Some wordings treat claims arising from food or drink consumed on the premises as Public Liability; others treat them as Products Liability.
Period of Insurance
The period of insurance is shown on the policy schedule. It is typically 12 months from the start date of the policy. The claim trigger is the date of the actual injury or damage, not the date of the error that causes the problem, that the product was sold or that the claim was made.
Legal Costs and Fees
A significant part of Products Liability claims are the legal costs and expenses that both sides incur in court. If your policy includes claimant’s costs, it will pay expenses awarded by a court or agreed in a settlement.
If your policy includes defence costs, it is likely to only pay costs incurred with written consent. Insurers may seek to handle claims using their own legal advisers, and only pursue claims with a reasonable chance of success.
Damages and Limits of Indemnity
Damages awarded in cases of serious injury can run into many millions of pounds. They can include;
- Special damages – compensation for financial loss already incurred, such as loss of earnings, travelling to hospital or paying for treatments
- General damages – compensation for injury or damage and future financial loss, such as predicted loss of earnings
- Aggravated or exemplary damages – awarded in addition to other damages in aggravated circumstances, intended to punish the defendant and discourage malicious conduct
There are two standard market exclusions which apply to all policies – war risks and radioactive contamination. Policies will also list their own exclusions, which might include gradual pollution, losses arising from design, rather than manufacture, or incorrect instructions supplied with a product.
Most policies can be automatically extended to indemnify partners, directors, managers or employees, as well as covering cross liabilities and compensation for court attendance.
Extensions - Optional Extras
For an increased premium, you can also arrange cover for specific contractual liabilities, the costs of a product recall, or financial losses caused by your products.
You must comply with policy terms to make a successful claim. You have a duty to take reasonable precautions to prevent injury or damage occurring. If any feature of the risk changes, you must notify your insurer.