Product Liability Insurance

Most publc liability insurance policies exclude claims arising from the liability arising from goods sold or supplied. In practice whilst the public liability insurance wording excludes such losses the cover is generally available under the same contract and is added by virtue of a products liability section. This cover is also available as part of package polices such as shop insurance and business combined insurance.

 

Most businesses have public liability cover and a few of these are compulsory in law, but manufacturers, suppliers, retailers or repairers of goods and products all need to protect against the risk of liability attaching to them for defective products.

It is increasingly common for parties to seek compensation where they feel they have suffered injury or damage at the hands of another. Liability my arise under common law, such as negligence or under the increasing volume of statutes that provide, in some cases, automatic legal remedy.

The Unfair Contract Terms Act and Sale of Goods Legislation are important pieces of legislation governing the provision of goods and services. Similarly, contract law makes assumptions that goods will be safe, free from defect and fit for their intended purpose. Irrespective of relevant statutes, the common law tort of negligence provides lawyers with fertile ground for making claims, and enforcing rights against the suppliers of goods. Although negligence will not always have to be proved, simply that the product was defective and that injury or damage was suffered as a result of that defect! There are defences to this, but the reality is that the cost of defending such actions fully justifies the payment of product liability insurance premiums.

Who is in the firing line for product liability claims?

• The producer of the product or the manufacturer.
• Any person putting their name, brand or mark or purporting to be the producer of the product.
• Any person who has imported the product into member state from outside the EU.
• Any person who repairs or reconditions the product.
• The supplier of the product.

A chain is formed throughout the process from raw material to eventual sale of the finished product and the courts will track the product back to the source of the problem, but if there is a break in the chain, or the court feels that the prospect of a satisfactory remedy is remote, perhaps an overseas supplier from developing nations - the action will lie with perhaps the importer of the goods or even the local shop!

Liability insurance policies differ from other types of insurance policy insofar as it is a contract of legal liability and does not contain specific sums insured payable in the event of a certain occurrence. Liability Insurance does not offer such specified benefits.

The purpose of the Public Liability Insurance policy is to provide indemnity to the insured for the damages paid in compensation to the injured third party or damage to their property arising out of and in course of their specified business activities. The majority of public liability claims involve compensation for pain and suffering caused to people and property damage.

As such the sum insured under a products liability policy is not referred to as such, it is specified as the limit of indemnity. This limit of indemnity represents the maximum amount the insurer will be responsible for in any one period of insurance. Common Limits of Indemnity are £1,000,000 £2,000,000, £5,000,000 and £10,000,000 although other limits are available.

Policyholders should make an assessment of the limits they require based upon the type of products they supply and their potential exposure to loss, although in reality it is more common for the limits of indemnity selected under a policy to be driven by contractual requirements.