Product Liability Insurance

Product liability insurance is designed to protect your business if your products cause injury or property damage to customers. This type of insurance policy may cover the legal and financial costs associated with claims of damage or injury.
Having adequate product liability insurance provides business owners with peace of mind, allowing them to focus on their business operations without worrying about potential product-related liabilities.

Why is Product Liability Insurance important?*

As a business owner, you take pride in maintaining high-quality product standards. However, even with the most stringent quality control, faults can occur. Product liability insurance may protect your business against such incidents.

If a customer makes a product liability claim for injury or loss caused by your business’s product, you may experience financial loss without adequate protection. Product liability insurance may cover the costs of such claims, safeguarding your business from major financial fallout.

This insurance covers various situations where a product can negatively impact customers and cause financial loss to your business, including personal injury or illness from product malfunctions, food contamination, and property damage caused by your product.

Aside from protecting your business’s finances and reputation, product liability insurance helps you comply with legal requirements, as some industries mandate this coverage. Having product liability insurance ensures you meet these regulations and avoid potential legal penalties.

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What does Product Liability Insurance cover?*

Product liability insurance may cover various situations where a product you make or sell negatively impacts customers and causes financial loss to your business. This includes:

Personal injury/illness

If a customer is injured or becomes ill due to a fault in your product, product liability insurance may cover medical expenses, legal fees, and any compensation awarded.

Examples may include:

Product Malfunctions: A defective electronic device causing burns or electric shocks.
Product Defects: A coffee maker sprays hot liquid, leading to burn injuries for users.
Contamination: Contaminated food products that cause food poisoning or allergic reactions.

Property damage

If your product damages a customer’s property, product liability insurance may cover the costs of repair/replacement along with any related legal fees.

Examples include:

Structural Damage: A defect in an appliance causes an oil leak, damaging the customer’s floor.
Fire Damage: A faulty toaster catches fire and damages a customer’s home.

This is a guide only and will vary depending on the product you sell and the policy you take out. It’s important to check with your insurer or Product Disclosure Statement (PDS) to find out what is and isn’t covered in your policy.

What does Product Liability Insurance not cover?

Like many insurance products, there are some things that product liability insurance doesn’t cover. Here are some of the common exclusions in product liability policies:

Claims of injury by you or your employees: Product liability insurance typically does not cover injuries sustained by you or your employees while using the product.

Damage to your own or business property: The insurance typically does not cover damage caused by your products to your own property or business premises.

Blatant deception: Insurance typically does not cover claims resulting from intentional deception or fraud. For example, if you lie about the elements of your product before getting insurance, you’re likely in breach of your policy.

Undocumented changes in the product design: If you make undocumented changes to a product’s design that lead to defects, these may not be covered. For instance, if you alter a product’s safety features without notifying your insurance provider.

Bad advice: Insurance typically does not cover claims related to poor advice with the product. For example, if a product comes with incorrect usage instructions that lead to harm, but you gave additional misleading advice, coverage may not apply.

Products that produce or include asbestos: Products that contain asbestos or are related to asbestos issues are generally excluded from coverage.

Costs associated with product recalls: Product liability insurance usually does not cover the costs of recalling a defective product from the market.

Efficacy exclusions. Efficacy insurance is also known as “failure to perform” insurance. Common in specific industries.

As always, it’s important to check with your insurer or Product Disclosure Statement (PDS) to find out what is and isn’t covered in your policy.

Who needs Product Liability Insurance?*

Product liability insurance should be considered by all businesses, including sole traders, manufacturers, wholesalers, and retailers.

Typically, any business that is involved in the production, supply, or sale of products should obtain product liability insurance.

No matter what type of product it is, there’s always the potential for something to go wrong. Even if you’re not at fault for injury or damage resulting in a defective product, you may still be liable for legal costs when defending a claim.

Product liability insurance may safeguard your business by covering any costs associated with claims made against you. This gives you the ability to confidently go about your work with peace of mind even if something was to go wrong.

Even if you do not make the products you sell, have you considered what it might cost you to legally defend or redirect any claims made against you back to the manufacturer? Product Liability Insurance may be an additional layer of protection for you and your business.

How much does Product Liability Insurance cost?

It’s difficult to provide a one-size-fits-all cost for product liability insurance since many factors may affect your premium, such as:

Type/industry: The type of product you make/sell and the industry you’re in may affect your insurance premium. Products considered high risk, such as electrical devices, may incur higher premiums.
Size: The size of your business may also affect the price of your premium. For example, a smaller business may have lower premiums since they’re distributing fewer products.
Revenue: Businesses with significant revenue may have higher insurance premiums since high revenue suggests higher risk exposure.

To get an accurate cost of product liability insurance for your business, it’s best to request a quote or speak to our insurance brokers.

What factors affect the cost of Product Liability Insurance?

Several factors may determine the cost of product liability insurance:

Product Risk Level
Higher-risk products, like medical devices or electrical equipment, may result in higher insurance costs.
Industry
Industries with stringent safety standards or higher claims rates may see increased insurance costs.
Business Size
Larger businesses often face higher premiums due to the greater volume of products and higher potential for claims.
Revenue
Higher revenue may lead to increased insurance premiums since they often signify greater business activity and risk exposure.
Claims History
A history of previous claims may raise your premium, as insurers view your business as a higher risk.
Coverage Limits and Deductibles
Higher coverage limits and lower deductibles typically result in increased costs.
Risk Management Practices
Demonstrating strong risk management and quality control practices may help reduce your premium, as it indicates lower risk to insurers.

Is Product Liability Insurance required by law?

In Australia, product liability insurance is not required by law. However, it may be a requirement before licences for certain trades are issued. Additionally, if you sell, supply, or deliver goods – whether through direct sales, repairs, or services – you could be held liable if your products result in:

Injury or death
Property damage
Emotional distress or recognised psychiatric conditions

Product liability insurance may protect your business if your product fails and causes any of these issues for another individual or business. Failure to possess product liability insurance in the above events could see your business liable for legal costs, compensation, or financial damages in the event of a claim made against you.

What should you look for in a Product Liability Insurance Policy?

When choosing a product liability insurance policy, ensure it offers adequate coverage limits for potential risks associated with your products and business type.

You may purchase product liability as a standalone coverage or as part of a general liability insurance policy. A standalone policy would be appropriate for a company with a high risk of product liability.

When choosing product liability insurance, pay attention to:

The coverage limits: Ensure the policy provides sufficient protection for potential claims.
Terms and conditions: Review what is covered and any exclusions or limitations.
Deductibles: Understand the deductible amounts and how they affect your costs.
Premium costs: Understand the premiums and compare costs for the best choice.
Claims process: Assess how efficient the insurer’s claims handling is.
Insurer reviews: Check online reviews of the insurer’s reputation and quality of customer service.

What are the limits and deductibles?

Limits in product liability insurance define the maximum amount the policy will pay for claims arising from product-related issues. This includes legal defence fees, compensation, and damages.

Deductibles are the amount you must pay out-of-pocket before your insurance coverage starts. In product liability insurance, higher deductibles typically lead to lower premium costs, but you’ll need to cover a larger portion of the expenses if a claim occurs.

What are the coverage exclusions?

There are a few circumstances that may not be covered under product liability insurance.

Economic Loss: Losses from a faulty product not leading to injury or damage.
Product Warranties: Replacement costs for product failure.
Expired Coverage: Claims for incidents occurring after the policy has ended or if the business has closed.

Ensure to review your policy details with your insurer and PDS to understand all exclusions.