Written by Product liability insurance is a type of business insurance that protects you against third-party claims relating to personal injury or property damage caused by your products. It protects you from claims of negligence for supplying an unsafe product, which includes products you may give away free of charge. It usually includes:
- illness, injury or death of a third party caused by your product
- damage to a third party’s property caused by your product
- the cost of compensation awarded to a third party
- the legal costs associated with your defence
You can choose an insurance policy that offers cover of $5 million, or up to $20 million or more, depending on the size of your company.
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What is product liability insurance and how does it work?
Product liability insurance is a type of business insurance that protects you against third-party claims relating to personal injury or property damage caused by your products. It protects you from claims of negligence for supplying an unsafe product, which includes products you may give away free of charge. It usually includes:
- illness, injury or death of a third party caused by your product
- damage to a third party’s property caused by your product
- the cost of compensation awarded to a third party
- the legal costs associated with your defence
You can choose an insurance policy that offers cover of $5 million, or up to $20 million or more, depending on the size of your company.
What is the definition of a product?
The word ‘product’ has a very broad meaning in legal terms. A ‘product’ can be anything that has been:
- made, constructed, created or manufactured
- installed, assembled, erected or processed
- grown, extracted, repaired or serviced
- bottled, labelled, distributed or handled
- imported, exported, marketed or advertised
It covers any tangible item that can be sold or supplied by a business or individual. For example, a plumber’s ‘product’ may be a completed bathroom. If the water pipes subsequently burst and flood the home, the plumber could be liable for supplying a faulty product.
Product liability insurance protects you by covering the costs of legal action taken against you for allegedly supplying any product which causes personal injury (including illness or death) or property damage.
What is the definition of a product?
The word ‘product’ has a very broad meaning in legal terms. A ‘product’ can be anything that has been:
- made, constructed, created or manufactured
- installed, assembled, erected or processed
- grown, extracted, repaired or serviced
- bottled, labelled, distributed or handled
- imported, exported, marketed or advertised
It covers any tangible item that can be sold or supplied by a business or individual. For example, a plumber’s ‘product’ may be a completed bathroom. If the water pipes subsequently burst and flood the home, the plumber could be liable for supplying a faulty product.
Product liability insurance protects you by covering the costs of legal action taken against you for allegedly supplying any product which causes personal injury (including illness or death) or property damage.
What isn’t covered by product liability insurance?
There are a few important areas related to this type of insurance that aren’t covered by most insurance policies. Some of these can be purchased separately or may be covered by other forms of insurance. For example:
- harm or injury caused to employees by a faulty product (this will be covered by workers compensation insurance)
- product recall of a faulty product
- your economic loss as a result of supplying a faulty product
- punitive damages awarded by a court against you if you’ve been found guilty of supplying a dangerous or faulty product
- defence against allegations of defamation arising from any claim against you (this may be covered by management liability insurance)
- liability arising from supplying any product containing asbestos that is found to have caused harm to a third party
How much will my product liability insurance cost?
There are several factors that will have a major influence on the cost of your product liability insurance, including the following:
- What products you sell: naturally, some products pose a higher risk than others. For example, the manufacturer of power tools would be assessed as a riskier business than a florist
- The size of your business: a larger company will produce more products that could potentially be the subject of a damages claim, so the larger the company, the higher the premiums are likely to be
- The location of your business: some city locations are considered higher risk than rural locations. For instance, if your manufacturing plant is in the middle of an industrial estate where there are many chemical processors, your company would be considered a higher risk than a company wanting insurance in Tasmania which is located rurally
- The size of your excess: you may choose to increase the size of any excess you pay on your claim to reduce the cost of your premiums
- Your insurance history: the number of previous claims you’ve made against your business insurance coverage will have a direct bearing on the cost of your next insurance policy. No-claims bonuses can reduce the cost of your insurance if you haven’t made a claim for at least five years.
Compare online quotes here with Savvy today, as you may be surprised how little your insurance may cost for a whole lot of peace of mind.
How do I compare product liability insurance?
Some of the aspects of product liability insurance you should look at when comparing quotes from different insurers are:
- the price of premiums: a cheaper policy with exactly the same coverage could save you thousands of dollars over time. However, price shouldn’t be the main factor, as it’s more important to have sufficient coverage
- the coverage inclusions: the insurance coverage on offer is more important than the cost of your policy, as a cheap insurance deal is worth nothing if you aren’t covered in vital areas
- any exclusions: as well as checking what’s covered in the policy, check what isn’t covered also. Some policies may exclude products which have been recalled or are no longer available to the public on the date the insurance cover is taken out, so check what’s excluded in your policy
- the claim limit: it’s important to make sure the maximum amount you can claim is enough to cover your business’ expenses if action is taken against you
- any bonuses: these may include additional months of cover if you take out more than one type of business insurance, or a no-claims bonus to reduce the cost of your premiums if you also have other forms of insurance with the same company (and haven’t made a claim in the past five years, for example)
What are most product liability claims for?
The most common forms of product liability claims result from:
- defective design or manufacture of products
- defective packaging or protection to the consumer
- failure to provide adequate instructions or warnings about use of the product
- advertising or marketing resulting in incorrect use
Whatever goods or products your company supplies, it pays to have the best product liability insurance to protect you from third-party claims. Compare quotes from some of Australia’s leading insurers right here with Savvy and protect your company with the right business insurance policy today.
How to compare product liability insurance policies
The types of business insurance
More of your questions about product liability insurance answered
Public liability insurance offers protection in the event a third party suffers an injury on your premises, or their property is damaged on your premises as a result of your negligence. Product liability insurance offers you protection if a product of yours injures or damages another person or property. As mentioned, these policies are often sold together.
Professional indemnity insurance offers protection if you are sued as a result of the advice or service you provide to a third party. This is more suitable for businesses who offer professional advice or guidance, rather than product manufacturers.
If the product you produce damages a third party’s software, then yes, you can be covered by your product liability insurance if you’re subject to a legal claim. For example, a software engineer who develops an IT system which is meant to seamlessly integrate may be found liable if the new product causes harm to a third party’s existing software.
No – product liability insurance isn’t compulsory in Australia, but many businesses are strongly advised to have this type of business insurance to avoid being left thousands, or even millions, of dollars out of pocket.
Firstly, get a range of quotes here with Savvy before you buy anything. Compare the policies on offer carefully before deciding which one is the best for your needs. When you’ve settled on a particular insurer, follow the online links to your preferred policy provider to finalise your cover and pay for your insurance.
This will vary from one insurer to another, but most companies will quote for premiums to be paid either monthly, quarterly or annually. A discount is often offered if the annual premium is paid in one lump sum, rather than being spread out over the year. However, many businesses prefer to spread the cost of their insurance out by paying their premiums monthly.
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Savvy does not compare all business insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.
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