If your business manufactures or sells products to the public, product liability insurance can be very important. It’s a type of cover that’s designed to protect you from legal action by individuals who claim to have suffered personal injury or property damage from using or being exposed to the items you provide.
The most famous instance of this is arguably the McDonalds hot coffee case, a 1994 American lawsuit which saw an elderly woman sue the fast food giant after she suffered third degree burns from a drive-through cup of coffee she’d spilt in her lap.
Her lawyers argued that because of the high temperature at which the company required it to be served, McDonalds coffee was more likely to cause serious injury than the hot drinks sold by other outlets. The woman was subsequently awarded damages of almost $US3 million, a sum later reduced on appeal.
Irrespective of whether or not they’re at fault, personal injury and property claims can be ruinously expensive for small businesses that don’t have the deep pockets of their multinational counterparts.
Product liability insurance can help defray the cost of defending an action against your business and of any damages you may be required to pay.
Additional insurance cover for high-risk businesses
Many insurers aim to provide small businesses with comprehensive coverage by bundling public and product liability insurance policies together.
But, depending on the nature of your product offering, it’s possible your business may require higher or more specialised product liability insurance cover.
Should it produce or sell pharmaceuticals, for example, a manufacturing error or contamination scare could necessitate the recall of an entire batch of products. The key thing is the defect has to have caused, or have the potential to cause, personal injury or property damage.
A product might be recalled because it is in the wrong packaging, for instance if it is chocolate cake but the packaging says it is vanilla cake. If someone bought the incorrectly labelled cake and then consumed it, the question is whether eating the chocolate cake would cause, or have the potential to cause, personal injury or property damage.
Contaminated products and recall insurance can help cover the costs associated with that exercise. It’s a type of cover that’s designed to help manufacturers and retailers of topical and ingestible products minimise the losses they incur when their products are contaminated accidentally or found to be defective.
As well as defraying the cost of the recall itself, contaminated products and recall insurance can help cover the cost of lost sales for the period in which your products are off the shelf.
Expert insurance advice to help you get it right
Product liability insurance can be a complex affair, with numerous contingencies to consider. An experienced broker can help you work through them and identify policy options that are appropriate for your circumstances, Steadfast broker technical manager Michael White says.
“Understanding the nature of your organisation and its risk profile is critical,” he says.
“The right broker will be familiar with the commercial landscape you operate in and will be able to recommend product liability cover that matches the size and scope of your activities.”
Insurance cover when it counts
If it’s been a while since your business reviewed its product liability cover, now is a great time to do so. Contact your AIB broker to explore your policy options.
Important notice
This article is of a general nature only and does not take into account your specific objectives, financial situation or needs. It is also not financial advice, nor complete, so please discuss the full details with your Steadfast insurance broker as to whether these types of insurance are appropriate for you. Deductibles, exclusions and limits apply. You should consider any relevant Target Market Determination and Product Disclosure Statement in deciding whether to buy or renew these types of insurance. Various insurers issue these types of insurance and cover can differ between insurers.
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Important notice – Steadfast Group Limited ABN 98 073 659 677
This article provides information rather than financial product or other advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
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