The Bionic guide to product liability insurance

All businesses, large or small, need insurance. Knowing the right type of insurance to get for your business is critical to make sure you are covered for any eventuality.

If there is a risk that your business could come up against legal claims for compensation from customers or members of the public, then liability insurance is something you may want to consider. And if your business is involved in the design, production or sale of products, product liability insurance could be particularly useful. 

This guide will help you to understand what product liability insurance is and decide whether your business needs it.

What is product liability insurance?

Product liability insurance is a type of business insurance that covers the cost of compensation if someone is injured or if their property is damaged by a product that you have sold, manufactured, designed or even just supplied.

You may be held responsible for a claim relating to a product even if you were not the original manufacturer or supplier. If, for instance, you have refurbished or repaired a product or imported it, you could be liable for damages caused by that product. You are also legally responsible for a product if it has your company name on it, whether or not you manufactured that product.

What does product liability insurance cover?

In general, product liability insurance will cover legal fees and compensation costs incurred if a member of the public is injured or their property damaged as a result of your product. 

If you design, sell or supply products to customers - or even import them for other businesses - it could be an invaluable part of your business insurance package.

Product liability insurance in the UK will typically cover you for claims related to:

• Customer injuries caused by your faulty product
• Loss or damage to a customer’s property due to your faulty product
• Undetected faults such as defects that your quality control system failed to pick up

There are a number of other instances in which product liability insurance might cover you, but where you would have to check with your insurer. This is why it is important to make sure you get the right policy for your business.

Things that could be covered by some - but not all - product liability insurance policies include claims related to products that are faulty because of bad workmanship, and claims for financial loss caused by your product.

What’s the difference between public and product liability insurance?

Product liability insurance is in fact just a type of public liability insurance. Or, more precisely, it is a subset of public liability insurance. That means that you may be covered for claims relating to faulty products as part of your public liability insurance policy.

However, product liability is not always included in a more general public liability policy, so always be thorough when checking with your insurer. Product liability insurance is also sometimes offered as a standalone insurance policy, though it will not cover you for some claims that a more general public liability policy would.

Does your business need product liability insurance?

If your business supplies products to customers, you have a responsibility to ensure they’re safe. Even if you didn’t make a product, you could still be held liable if it was to cause an accident.

So, whether you’re the manufacturer, retailer or wholesaler, you’ll need product liability insurance to protect yourself against any claims from a member of the public who has suffered injury or had their property damaged as a result of your faulty product. 

If you are a manufacturer of products, it is fairly essential - though not a legal requirement - to get product liability insurance. This is because some of the other companies you trade with may require you to have it. Furthermore, product liability claims against you could be incredibly financially damaging.

If you are not a manufacturer, there are still a number of reasons you could be held responsible for injury or damage caused by faulty products that you are involved in selling or repairing. These include if:

• Your business has its name on it
• You can’t identify the manufacturer
• Your business repairs or changes the product
• You imported the product from outside the European Union
• The manufacturer has gone out of business

Under these circumstances, you would be liable for compensation costs if the product you sell causes an accident.

When might you need to claim on a product liability insurance policy?

You would need to make a claim on your product liability insurance policy if you are asked to pay compensation as a result of injury or damage caused by your product. This may come as a result of a legal claim against you, or because another business in your supply chain is seeking compensation from you because of a claim against you.

Is product liability insurance a legal requirement?

No, product liability insurance is not a legal requirement but it could well stop you from doing business. That’s because you may find that other businesses in the supply chain will refuse to work with you if you are not covered against claims brought as a result of faulty products.

What insurance do I need for selling products?

Product liability cover is a type of insurance that will greatly benefit you if you sell products.

If one of your products injures a customer or damages their property, your company could be liable, even if you didn't make the product yourself and just supplied it. Product liability insurance can help protect your company from forking out compensation claims.

How much product liability cover does your business need?

It is really up to you how much product liability cover you want to arrange under your insurance policy. Most insurers will have a maximum amount they will insure up to, typically set at either £5m or £10m. 

However, the amount of money you need to spend on cover depends on how serious the claims against you might be. For instance, if your business operates in a field where faulty products are only likely to cause slight damage, then you will not need as much cover as you would if you make products that could cause very serious injury.

If you are unsure, always get advice before agreeing on a product liability insurance quote.

How much does product liability insurance cost?

The higher your insurance coverage, the more it will cost. If you take out a policy that has a limit of several million pounds, then your liability insurance could be relatively expensive. However, if you are taking out a policy that only protects you against smaller claims, it is likely to be cheaper.

How to get the right business insurance with Bionic

At Bionic, our team of experts know everything there is to know about business insurance, while our cutting edge technology can scour hundreds of insurers in minutes to find you the perfect deal.

We will establish what type of cover you need and then find the insurance policy to match, so you can continue to trade with confidence.