Product Liability Insurance Explained

As a business owner, it is important to ensure that you have adequate insurance to cover your products and services.

What Does Product Liability Cover?

Product liability insurance provides cover for property damage or personal injury claims arising from the use of a business’s product, or the failure of that product.

Product liability insurance is included under public liability insurance or sometimes referred to as general liability insurance. Claims are generally occurring in two ways.

What Does Product Liability Exclude?

There are several circumstances that are not covered under a product liability insurance policy. For example, when there is a pure economic loss because of a faulty product which is not consequential to either property damage or personal injury. This means that product liability insurance doesn’t pay for a claim if your business sells a product and it doesn’t work, resulting in a third party losing money.

Product liability insurance is not the same as product warranty or guarantee, meaning if you sell a product and it doesn’t work and it must be replaced, then no cover is granted.

Furthermore, for a claim to be paid by an insurance company, the damage must take place while the insurance is in place.

For example, if an electrical company sells a dryer to a customer. Two years later, there is an electrical fault in the dryer and it starts a fire that damages the customer’s home. The products liability policy that usually responds is the policy in place when the fire occurred. If the business that sold the dryer goes out of business in the time between selling the computer and the fire and it has no insurance in place, it won’t often be covered by the policy that was in force at the time the product was sold.

Does Product Liability Cover Services?

It is also important to understand that under the definition of a product liability, your work can also be considered to be your product. For example, if you’re a tradesman and you build a kitchen renovation, the renovation is deemed to be your product. If something in the kitchen fails once you’ve completed the work, such as kitchen sink pipe that is incorrectly installed and floods the house, then the claim arising out of this example will be a product liability claim, not a public liability claim.

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