In this article we look at product liability insurance as part of our series on the types of insurance that businesses should consider taking out. Product liability insurance covers the cost of compensating anyone who is injured by a product that your business made, designed or supplied where the injury can be shown to be a result of a fault in that product.
If you make or supply products to the general public you have a responsibility to ensure that they are safe. Many products are regulated by health and safety and product safety laws. If you are manufacturing or selling any products, it is vital that you ensure that you are complying with these laws.
Consumer protection is given by the Consumer Protection Act 1987 (‘CPA’) – see below for more on this. The main responsibility falls on the manufacturer of the products but retailers and wholesalers also have legal responsibilities. Primarily you have to make sure that the products you make or supply are safe or you can end up facing legal action.
While you may take every precaution to ensure that your products meet the necessary safety standards, it is possible that someone or their property may be injured or damaged by your products. For protection you should therefore consider product liability insurance if your business makes, designs or supplies a physical product.
Product liability insurance protects you/ your company against the cost of compensation for:
- death or personal injuries caused by your product;
- loss of or damage in excess of £250 to property caused by your product; and
- unforseeable circumstances such as product faults that your quality control system could not identify.
However, product liability insurance may not cover you for:
- faults that are caused by bad workmanship or design; or
- financial losses to a business caused by your faulty product.
Product liability and the Consumer Protection Act 1987
A consumer of a product has the right to make a claim for any loss or injury caused by a fault in that product against the manufacturer or supplier of the product under the CPA or, alternatively, for negligence. Under the CPA there is no need to prove that the manufacturer was negligent, just that the loss or injury was caused by a fault in the product. This means that it is easier for a consumer to be compensated for loss or injury caused by a faulty product.
Who can claim under the CPA?
Anyone using the product can make a claim under the CPA and not just the person that bought the product. In addition, a person using a faulty product at a place of work where the product is the cause of the personal injury can make a claim.
A product can include goods, electricity, the component parts of any product, raw materials and food. You can even find yourself being sued by anyone who has been injured or had their property damaged by your product.
The claimant must be able to show that the fault in the product caused the injury or damage.
How long are producers liable for?
Under the CPA a claim cannot be made for compensation for an injury or damage that happened more than ten years after the actual product was first supplied to a consumer.
In addition a person has three years from the date of damage or injury to make a claim. However, since damage may not be immediately apparent the three years will only start from the date when the claimant knew – or could reasonably have known – of the damage.
Who is liable?
You can be held liable for faulty products even if you did not manufacture them or if you gave them away for free.
More specifically you may be liable for compensation if you:
- manufactured or designed the product;
- manufactured or designed a faulty component part of the final product;
- are responsible for an industrial or other process to which an essential characteristic of the product is attributable;
- repaired, refurbished or changed a product;
- put your business’s name or trade mark on the product;
- supplied the product having put your own name on the product giving the impression that you produced the product;
- imported the product into the European Union;
- supplied the product and cannot identify the manufacturer or the manufacturer has gone out of business.
You should not be liable for compensation if you are solely a wholesaler and retailer of the faulty product unless you fail to identify within a reasonable period the manufacturer(s), repairer, importer, etc if asked to do so.
Where you are liable with others for the same damage, your liability is joint and several, so the claimant may sue any (or all) parties. It is not possible to exclude your liability under the CPA by any contract term or other provision.
Meaning of ‘faulty’
A product is faulty for the purposes of the CPA if its safety, including not only the risk of personal injury but also the risk of damage to property, is not such as persons generally are entitled to expect. A product will not generally be considered faulty just because a safer version is later put on the market.
In assessing the safety of the product the court will take into account all of the circumstances, including:
- all aspects of the marketing of the product;
- the use of any mark in relation to the product;
- instructions and warnings; and
- what might reasonably be expected to be done with the product at the time the product was supplied.
Defences to a claim under the CPA
Although the CPA places significant onus on the product manufacturer or supplier there are a number of defences available if you can show that:
- your product is faulty in order to comply with domestic or European law – compliance with a regulation will not necessarily remove your liability as you would need to show that the fault was the inevitable result of such compliance;
- you did not supply the product (e.g. it was stolen or is a copy);
- you did not manufacture or supply the product in the course of your business (e.g. you donated it to a local fair);
- the fault did not exist when your product was supplied (e.g. your product became faulty as a result of how the retailer handled it);
- you produced a component and can show that the fault was a fault within the finished product having come about because of the way the finished product was designed or because of instructions given to you by the manufacturer of the finished product; or
- the state of scientific and technical knowledge at the time the product was supplied was not such that a producer of products of the same description as the product in question might be expected to have discovered the fault (often referred to as the ‘development risks defence’).
The extent of your liability could be affected by any contributory negligence on the part of the claimant i.e. where the claimant contributes to the injuries by being careless.
If you do not manufacture the product but you distribute it, you may be covered if you can show that:
- the products were faulty when they were supplied to you;
- you gave customers adequate safety instructions and warnings about misuse;
- you included terms for the return of faulty products to the manufacturer;
- your supply contact with the manufacturer covers product safety, quality control and returns;
- you have good quality control and record-keeping systems.
We all consume, use or simply come into contact with countless different products. We need to be able to safely use these products for their intended use and in line with any safety instructions. This does not mean that products must be totally safe – just as safe as it is reasonable to expect. Anything more could be too expensive for manufacturer and designers. The aim of the CPA is to help safeguard the consumer from products that do not reach a reasonable level of safety.
Clearly the CPA is aimed at protecting the consumer but there are also benefits for business. Only safe products will provide a source of long-term business and the law also serves to protect you from unfair competition from traders who cut corners on safety.
Buying product liability insurance
As it is unlikely that you can ensure that all your products are totally safe you should consider obtaining product liability insurance.
You can buy product liability insurance directly from an insurer or from a specialist broker. Most businesses take out policies that cover them for compensation claims of between £1 million and £5 million. It is often sold as part of an overall business insurance package that will also include public liability, employer’s liability, business interruption and property insurance.
It covers the cost of compensation to anyone who is injured, or whose property is damaged, as a fault in a product you design, manufacture or supply.