The Business Insurance Bureau

Product Liability

"Not everyone automatically realises you can't dry your pet in the microwave..."

What is Product Liability Insurance?

The Insured is indemnified against legal liability to pay damages and claimants costs, in respect of accidental bodily injury and accidental damage to material property, occurring during the period of insurance and caused by or arising out of Products supplied in connection with the business.
This means not only goods but also packaging, containers and labels.

The supply situation embraces: sale, supply, delivery, alteration, testing and storage. The Business Description in the policy should take account of any discontinued goods, for which a run-off liability may exist.

Cover is for injury or damage, (failure to perform is not included).

No defect in the product is required, so the harmful effect can come about in a number of ways, (e.g. misleading instructions as to use).

What's Covered?

Limit of Indemnity

This is expressed as a maximum for any one period of insurance. A single accident or occurrence limit is difficult to apply, as one original act of negligence could create multiple claims, therefore the limit has to be realistic. The insured’s own costs (subject to consent) being payable in addition.

Territorial Limits

The Injury/damage can occur anywhere in the world but the Products have to be supplied in or from Great Britain, Northern Ireland, the Channel Islands, the Isle of Man.

Consequently, exports and items purchased by tourists are covered. Where supply is from overseas, special negotiations may be necessary and the question of jurisdiction arises. Insurers may insist upon a UK jurisdiction clause, requiring that the action is brought in the UK courts.

Your Duty

You must ensure that the fullest description of the products is given to the Insurer. You must include discontinued product ranges as retrospective cover may be needed. Indemnity should take account of full potential (particularly USA) exposure.
You must notify any changes in the risk to the Insurer immediately.

Losses Occuring Vs Claims Made Cover

The ‘long-tail’ nature of some forms of injury or damage has in recent years highlighted difficulties associated with the traditional ‘losses occurring’ wording. Insurers have found themselves meeting claims for injury / damage they could not have anticipated when accepting the risk, while insured’s have found themselves underinsured in terms of indemnity limits that could not easily have anticipated the developments in terms of risks, awards, etc.

Consequently, the market sought to move towards a ‘claims made’ wording, in both public and product liability policies.

The strength of that movement has declined a little but the differences between the two approaches should be appreciated. When ‘claims made’ cover is arranged, a retroactive date is fixed (usually inception). A potential problem is that of the run off risk when a claims made policy lapses and careful enquiry should be made as to the facilities for extended cover. If the products liability cover is arranged by extending the public liability policy it is undesirable that one should be ‘claims made’ and the other ‘losses occurring’.

Products Guarantee

The insurance indemnifies the insured following the failure of the product to fulfil its intended function. The market is limited. Cover is most likely to be sought for plant and equipment designated for a specific purpose, where the losses will be serious in the event of failure to perform – such covers are often sought to cover warranties and other contractual commitments.

The insured is indemnified for legal liability to pay damages to claimant’s costs in respect of:

Removal, repair, alteration, treatment or replacement of the product and consequential loss in the event of the product being harmful or defective or failing to perform its intended function. There is cover for the insured’s own costs if incurred with the insurers consent.

Product Recall

The harmful nature of, or defect in, a product may not have been discovered until after many such products have been widely distributed. The cost of recalling such products is likely to be heavy and the purpose of product recall is to meet these costs. Cover operates in connection with goods whose consumption or use may cause a legal liability to attach to the insured.

Excluded are products recalled solely because of

  • government or local authority intervention
  • products not distributed
  • misdelivered or misdirected products

Any fines or penalties imposed are also excluded if the recall decision of the insured is disputed by the insurer, the conditions provide for arbitration.

Frequently Asked Questions

Product Liability covers you in the instance of injury or property damage caused by a product sold by your business. This kind of policy can save you the cost of the high legal defence that can come with a claim like this, as well as the compensation is a product is defective. 

Many clients and industry bodies with regulatory requirements will require you to have a minimum level of cover in order for you to undertake a contract, so it’s worth checking this before you arrange cover. If you’re unsure, or it’s the first time you have arranged cover, give some thought to a worst-case scenario and the likely costs involved in putting your mistake right. We offer a range of limits, so you’re sure to find the right cover for your business.

You cannot be sued – as nobody has suffered an injury or loss – but you can face prosecution. A producer can be prosecuted for placing unsafe products on the market. A supplier can be prosecuted if they fail to take reasonable steps to ensure that products they supply are safe. In both cases, individual company directors could also face prosecution.

For certain products, typically those that present particular risks you can also face prosecution if you fail to follow specific safety regulations

As far as misuse by the customer is concerned, the key question is whether people could reasonably be expected to misuse your product in that way. If so, you could be liable. Ensuring that you give adequate safety warnings and instructions will reduce the likelihood that a claim against you will succeed.

Even if you are liable, your liability may be reduced if you can show that the claimant contributed to the damage or injury through their own carelessness.

If the defect that causes the damage or injury is not present at the time you supply the product, you are not normally liable. So you would not normally be liable if an installer or supplier mishandles the product.

However, you could be liable if the product needs special handling, but you failed to tell the installer or supplier about this. If, for example, your product needs to be installed in a certain way to operate properly, you need to provide adequate installation instructions.

You need to ensure that the product is as safe as people are reasonably entitled to expect. This generally means that you should have taken steps to control or eliminate all safety risks. You also need to comply with any specific safety regulations for your product.

If you supplied the product for sale some time ago, you may be able to defend yourself against a claim if you can show that the defect was something which you could not have been expected to discover at that time. In practice, this defence is only likely to help you if there has been some relevant scientific or technical advance since you produced the product.

Let's make it cheaper, by doing it right

Main Extensions

Legal Defence Costs

Provides indemnity in connection with the costs of defending criminal proceedings and the prosecution costs, awarded against the insured when the related product liability risk was covered. Fines and Penalties are not covered.

Financial Loss

This provides cover for liability in respect of accidental financial loss caused by defects in goods supplied in circumstances where there is no accompanying injury or material damage. The cost of replacing or recalling the goods is not covered. Insurers seek an excess or coinsurance clause when this extension applies.

Retrospective Cover

The ‘long tail’ potential of some products (e.g. pharmaceuticals), created a demand for this extension. The cover does not operate if the insured’s inability to recover under an earlier policy is due to a restriction, breach or exhaustion of indemnity limit. The injury / damage must have occurred prior to inception.

Indemnity to Other Parties

If the insured has offered an indemnity to vendors of his product a special indemnity may be sought to overcome the effects of any contractual liability exclusion.

Retrospective Cover

The ‘long tail’ potential of some products (e.g. pharmaceuticals), created a demand for this extension. The cover does not operate if the insured’s inability to recover under an earlier policy is due to a restriction, breach or exhaustion of indemnity limit. The injury / damage must have occurred prior to inception.

Main Exclusions

Contractual Liability

Excludes liability assumed under an agreement (or contract) that would not have otherwise have attached, thus limiting the cover to statue and common law. Any agreements that vary this position should be investigated, including those under which the insured fits into the chain of supply.

Suppliers and / or purchasers may seek to be indemnified by the insured. Such requests, depending on the nature of the contractual liability exclusion, may call for policy extensions (e.g. vendors liability extension). In any event, such indemnities, agreements and waivers become issues of disclosure.

Replacement of Goods

Replacements, reinstatement, recall, guarantee of performance are excluded being the subject of extended or separate cover (product guarantee and product recall)

Efficacy Risk

When a product fails to perform its intended function, some insurers exclude all loss or damage arising from the failure.

Advice, Design, Specification

Wordings vary among insurers but the intention is to exclude the professional negligence risk.

Liability for Goods Installed in Aircraft / Ships Practice varies among insurers but the aviation market caters for aircraft component manufacturers. Some insured’s may not know the ultimate destination of their products and ought to be able to obtain their cover by amendment or absence of the exclusion. Also the exclusion should be overridden if the goods (e.g. soft furnishings etc) do not affect the safety or navigation of the craft.

Excluded Property

The cover does not apply to liability in respect of property in the insured’s custody or control, or held in trust, or hired or loaned to him. This exclusion usually does not apply, however, to employees, directors or visitors property.

Let's make it cheaper, by doing it right

Making the small print...BIG

A Fair Presentation of the Risk
At the heart of insurance contracts is an obvious truth: you have an enormous advantage over the insurer. You know all about your business, its history, processes, people and management, but the insurer knows nothing – other than what you tell them.

Your Duties
You have a statutory duty to make a fair presentation of the risk. You must tell the insurer:
• Every material circumstance which you know or ought to know and/or
• Sufficient information that would cause the insurer to make further enquiries, if neccessary, to review those material circumstances

Your Knowledge
• You are deemed to have the knowledge of the company’s senior management.
• You are deemed to have the knowledge of the person arranging the insurance (who is deemed to be a senior manager under statute).
• Anything that can be discovered by a reasonable search.

A failure to make a fair presentation of the risk gives the insurer various remedies, depending upon the nature of the failure, from avoiding the contract and not paying claims to modifying the basis of settlement. 

Examples of Misrepresentation
It is often easier to demonstrate the consequences of risk presentation failure by example rather than theory. Here are some real life examples of typically forgotten or unrevealed material facts which later caused huge problems and repudiated claims:

Fire

Theft

Water

Liability

Motor

General

A reprocessing plant did not reveal a series of small fires during their insurance year.

Following repeated false alarms, a retailer didn’t reveal that Police Response had been withdrawn.

A restaurant omitted to reveal repeated minor floods from an upstairs nightclub.

A construction company didn’t reveal potential employee claims recorded in their accident book.

A company failed to reveal written warnings to an employee over repeated dangerous driving.

A company failed to reveal that it had been ‘struck off’ by Companies House and was trading as a new legal entity under a different designation.

Compiling the Risk Presentation: an ongoing process

The compilation of risk information for presentation to an insurer might be thought to be simply contained in a proposal or risk presentation form, however, such forms are not exhaustive and cannot take account of circumstances which change beyond their
compilation. Moreover, merely referring insurers to your website or dumping data is not making a fair presentation of the risk. ’Fairness’ is a subjective test but it would certainly involve simplicity, clarity and relevant selection.

Ongoing communication is vital, because the duty to disclose material circumstances is ongoing throughout the insurance year and at renewal of the insurances.

It’s important…

It is not possible to overstate the importance of researched, adequate risk presentation – there have been countless legal disputes, repudiated claims, ruined businesses and lives arising from the simple failure to reveal all the facts to an insurer. A failure to present risk adequately is a bigger risk than the risk you present.

It doesn’t matter that the failure is innocent, something overlooked, forgotten or discounted as unimportant – it might be important to the insurer, in which case it must be revealed.

Should there be anything not yet disclosed, or that you are unsure would influence your insurers about this insurance tell your broker/insurer immediately. 

Don't take our word for it! Here's what our clients say...

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BenRiach Distillery

Billy Walker

“When we were purchasing the distillery, we required to purchase some specialist insurances. We were stuck in a room with seven experts from a multinational insurance broking firm who told us we would never be able to purchase the cover we needed. I think, that it was a similarly rare, quality independent firm, The Business Insurance Bureau, that managed to unlock the door to the insurance we needed – and we’ve never looked back.”

Shish Mahal Restaurant

Asif Ali, COO

“We had a fire a few years ago that started in the flat above our restaurant. Bob was on site within the hour, armed with a loss adjuster. Work started immediately and incredibly, we were up and trading within 5 days! It was a truly impressive turnaround, professionally handled. They also do great work on risk managing the kitchen, which is invaluable after our fire experience.” 

Barrowland Ballroom, Glasgow

Stan Riddet

“We were about to give up concerts altogether when, we were introduced to Bob Hannah. He commissioned an independent structural/fire survey which showed the ballroom to be a much better risk than had previously been believed. As a result we ended up with our insurance position renegotiated to an acceptable level. There is no doubt this little touch of ingenuity has turned out to be a major factor.”

Working With Us

  • Services
  • Payment Terms
  • Confidentiality & Security
  • Claims
  • Cancellation Rights
  • Duration & Termination

The Business Insurance Bureau conducts both client and market research to identify solutions to the needs of an almost exclusively business clientele. We will make a recommendation once we have assessed your demands and needs.

All premiums due to insurers must normally be paid by you on or before the date that cover commences. Where alternative methods of payment are available these will be discussed with you so that arrangements can be put in place by the due date.

We are registered with the Data Protection Registrar. We will ensure that any information obtained from you is treated by us and anyone else involved in arranging, considering to arrange or managing your insurance, as Strictly Private and Confidential. We will not provide your information to anyone else unless we:
have your permission to do so, or -are required to by the FCA, or -are required to do so by law, or -are required to do so in the normal course of arranging or negotiating and maintaining, or renewing financial services products which we may from time to time approve.We take appropriate steps to ensure the security of any money, documents, other property or information handled or held on your behalf.

All information in any form, with the exception of policy documents and certificates issued on behalf of insurers and supplied by us, to you, should be treated as Strictly Private and Confidential and not be released directly or indirectly to any other party, without our explicit consent.

Note: in transacting your insurances with The Business Insurance Bureau, you are deemed to have accepted our Terms of Business. Your accepting of these Terms of Business does not affect your statutory rights.

You must notify us as soon as possible of a claim and circumstances which may give rise to a claim. In the event of a claim you should contact this office and we will promptly advise you and if appropriate, issue you with a claim form and pass all details to your insurer. You should not admit liability or agree to any course of action, other than emergency measures carried out to minimise the loss, until you have an agreement from your insurer. We will remit claims payments to you as soon as possible after they have been received on your behalf. In the event that an insurer becomes insolvent or delays making settlement we do not accept liability for any unpaid amounts.

You would have the right to cancel a policy within 14 days of its inception or upon receipt of the policy documentation whichever is the later. You would as a Consumer and without providing a reason, cancel the policy by confirming this is in writing to the address of our office through which your policy was placed. Any policy documentation and in particular any legal document, i.e. Certificate of Motor Insurance, Employers Liability Certificate, MUST be returned with your instruction to cancel. By exercising your right to cancel the policy, you are withdrawing from the contract of insurance.

Our services may be terminated without cause or penalty by giving one months’ notice in writing. In the event that our services are terminated by you other than at the expiry of the policy we will be entitled to retain any fees and all of the brokerage payable. The responsibility for handling claims reported after the date of termination shall in the absence of an express agreement be the responsibility of the party taking over the role.