Does my business need product liability insurance?
Published 19 December 2019
Quality standards in Australia are high – but accidents and oversights do happen. If your business produces, sells or transports consumer goods they can present potential hazards to members of the public. Here’s what you need to know about this risk and how you can protect your business.
Product liability refers to business’s responsibility if another person (who isn’t an employee) or their property is harmed by one of its products. This can be distressing in regard to the human impact if someone is hurt, and it also can be expensive in terms of compensation and the cost of legal defence. Australia is second only to the United States in the size of court awards for personal injury claims. The highest single payout to date was $19,000,000 and half of that was legal fees.
What is product liability Insurance?
Product liability insurance provides essential cover if someone claims that one of your products has caused them damage or loss. This could take the form of injury, death or damage to or destruction of one of the claimant’s possessions, including fixtures, buildings or land.
This cover provides protection for you, your staff and members of the public if someone has been harmed – either physically or psychologically – or suffered damage to their property, or a financial loss as result of negligence in the workplace by you or one of your employees.
6 examples that could apply to your business
a contaminated food product causes illness
the labelling or packaging doesn’t include important information
perishable product degrades during transport
a mechanical fault means a component doesn’t meet quality standards
the product develops a defect during normal use
the product causes unanticipated damage to the buyer’s property.
Product liability insurance plays an important role in managing issues such as manufacturing defects or inadequate labelling, instructions or warnings. If you deal in products of any kind you need to have it.
“If you’re in supply or production you need to protect your business and your bottom line if there’s an incident that potentially causes a third party loss, especially if the fallout is severe, which can happen if an entire production run is affected or the consequences are very serious."
Stephen Elms, Gallagher Head of Food Production
Protect your business
Liability isn’t necessarily clear cut. If someone believes your product is responsible for an incident they have to produce proof of your business’s negligence and of their loss in order to claim damages. That doesn’t change the need to legally defend your business, whether the allegations are valid or not.
Crucially, public liability insurance covers legal costs as well as the compensation you may be ordered to pay, protecting your assets.
Want to learn more?
Interested in finding out more about liability and how it might apply to your business activities? Read our plain English explanation of how this type of insurance protection works.
To the extent that any material in this document may be considered advice, it does not take into account your objectives, needs or financial situation. You should consider whether the advice is appropriate for you and review any relevant Product Disclosure Statement and policy wording before taking out an insurance policy.