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Product Liability Insurance Explained

Product liability insurance is designed to protect both your business and your customers. When a consumer is injured or otherwise damaged, suffering in some way because of your product, they have the right to sue for compensation for their pain and difficulty. This insurance protection pays for both legal fees and any compensation awarded in the suit. 

Who is a potential candidate for product liability insurance?

Under the Australian Trade Practices act, any business, even an importer, supplier, or retailer of a defective product can be held liable. If your business is selling products made by other companies, you can still be sued if something goes wrong for a customer who bought a defective product from you. The legal expenses for a liability case can be very high, and if you have to pay a settlement, the expense can ruin your company.

What typically does a product liability policy cover?

This sort of policy protects against claims that a good you manufactured, imported, or sold caused injury, damage, or death to an individual or property. Product liability insurance will pay for your legal fees to defend yourself, and if your defence is unsuccessful, it will pay the money awarded to the person who sued you.

What typically does a product liability policy not cover?

This insurance only covers products, including products that you may install as part of a repair service. There are many other ways your company can be sued: for errors in running your company that damaged a third party, for employment practices that cause an employee to sue, etc. These must be covered by other insurance products.

Additional coverage that policy holders might take out in this area

When you're in business, it is wise to protect yourself. Even if you have done nothing wrong and someone files a suit against you, you're still going to have to pay for your legal defence. Small businesses can find it very difficult to absorb such costs and still function.

Some business owners have opted to carry public liability insurance, because of the risk of customer injury in the building that they operate out of. If you have employees, you are also risk of having a worker's compensation claim due to worker injury. Carrying workers' compensation can cover many workplace injuries. Employment practices liability is another option which protects you from lawsuits filed by disgruntled employees that might accuse you of unfair employment practices.

Additional coverage for a product liability policy

A product liability insurance policy can be tailored to cover your business, whether you are a sole proprietor or running a large company. Insurance companies may offer options to cover such things as:

  • Product guarantees
  • Product recalls
  • Product tampering
  • Profit protection in the case of product tampering, when news of the tampering will damage your sales, or even eliminate income if you have to pull a product from sale.

What will product liability insurance typically cost?

This is a fairly expensive form of insurance, because the potential payouts are very high. An injured consumer who wins a liability suit is often awarded millions of dollars, and many small businesses have chosen not to carry certain products rather than pay for the liability insurance on them. Shop around and find a company that can give you appropriate coverage without charging premiums that will put undue strain on your business budget.

Where Can I find Product Liability Insurers?

You can find a wide selection of Product Liability Insurance brokers and agents at www.productliabilityinsurance.com.au.

Please note that this is not an exhaustive list of all available product insurers in the marketplace.

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