Product liability insurance

Product liability insurance is a form of business insurance, designed to cover you and your business if unforeseen claims are made against you. It specifically covers you for claims related to any damage, injury or illness caused by products you’ve made, sold or both. Product liability insurance is important if you’re selling any kind of goods, because even if you had absolutely nothing to do with the manufacturing of the product, you can still be sued.

If anyone is injured or taken ill as a result of using a product you’ve made or sold, product liability insurance can cover the costs and expenses of the legal action against you and compensation costs you have to pay.

Product liability insurance can cover you if there was only one faulty product that led to a large compensation payout of a few thousand pounds. But it can also cover you if there is a major issue with your product.

Product liability insurance isn’t required by law, but it could prove to be vital to the survival of your business if there was to be a fault with one of your products. Depending on your line of work and what you sell, your manufacturer, supplier or retailer may even require you to have a minimum level of cover.

Product liability insurance is not only reserved for big businesses with long production lines. Even if you work by yourself, making or selling a select few products, or even if it’s not your main business and just a bit of fun, you could still be liable for any faults in your goods.

Examples of when you could be liable and therefore should consider getting product liability insurance include:

• If the name of your business or company is on the product.
• If your business has made changes to or repaired a product.
• If your business imports products from outside of the EU.
• If you’re not sure who your manufacturer is.
• If the manufacturer of your product has gone out of business.

The level of cover you get for your business is up to you – there is no minimum level required by law. Some products may have more risks associated with them than others. Products Liability is written on an 'Aggregate basis' so whatever limit you have selected will be the maximum insurers will pay in total for all insured events occurring in any one period of insurance. For example, if you were covered for up to £5m, the most your insurer will pay out for any one claim would be up to the limit of £5m or if you had several claims during the policy period the total they would pay would be no more than the limit of £5m. It is important to consider what limit you choose for your business requirements.

There are a number of factors that influence the premium you will pay. Generally, insurers will take into account what your products are, the materials and processes used to manufacture them, what they are used for, the likelihood of potential failure or claims from these products, your turnover as you sell more, the level of cover selected and also if you have had claims against you.

If you’re doing contractual work, it will often be stated in your contract what minimum level of cover you are required to have.