Product Liability Insurance Frequently Asked Questions

Product liability covers legal liabilities arising out of damage/ injuries to third parties caused by the use of the product, and policy pay claims to cover defend cost, compensation for injuries/ death, replacement or repair to property damages as a result of performace failure of the underlying product.
Companies whom uses Product liability insurance are typically manufacturers whom are responsible for the design and safe use of the product. State laws could also enforce strict rules and requirement for public safety requirement to be adhered for the sale and distribution of products for public use. In the event that there is a breach of safety regulation in the use of the product, hence resulting in the loss of lives or damage to property, monetary compensation to the public or regulatory fines will be a hefty burden to bear for any businesses, especially so if the damages are irrepairable or if there is accidental death.
There are several measures to prevent the occurance of such incidents through adequate risk management controls such as stringent stress testing of the product before the product launch, or even engage an independent Quality Control (QC) contractor to evaluate and sign off for safety checks. Alternatively if product defects still exist, a Product Liability Insurance covers the insured for unforeseen catastrophic loss should accidents occur.
Talk to us to find out more on how we can go about to cover your legal liabilities for such occurances

Product liability insurance doesn’t cover:

  1. Intentional defects, e.g. knowingly manufacturing faulty products, or knowingly publishing false product claims
  2.  

The amount of coverage you should purchase is dependent on the maximum exposure the company could possibly face based on the sale of the product. Every Product liability policy is structured differently based on the product, the contract between buyer and seller, as well as the market it serves.
For example, if the product sale is a result of a contract delivery for the manufacture of specialised equipment, the amount of coverage needs to take care of possible contract/ performance failure of the buyer for the intended use of the equipment. A high valued product will require a higher policy limit, and specialised manufactured products with no close alternative market substitutes will result in greater cost of replacement of both time and money, resulting in possible higher defence cost in the event the buyer seeks to purse legal recourse for performance failure of the product
The market size for the distribution of the product should also be considered when structuring the amount of coverage required for Product Liability policy. The exposure on a single corporate buyer vs public consumers requires different levels of coverage as well, and the potential legal liabilities are magnified when selling your product to the mass market.

In most cases, product liability is not a statutory requirement. That said, private or government contracts would sometimes require some form of product liability for new R&D products as such items are not tested or proven to work in our existing marketplace.

In Singapore, there are few ways to seek recourse for faulty items sold. The most simple way is to fall back on the sales and purchase contract drawn up between the buyer and seller, and the contract terms will stipulate whether there is product warranty period for the replacement/ repair of the product. Otherwise, the buyer may pursue this incident under the Breach of Provisions Under the Consumer Protection (Fair Trading) Act, and seek damages or remedies for either replacement or refund of the item.

In the case of negligence on the seller part to ensure the product is working well, buyer may seek legal actions to claim back the losses incurred as a result of use of the product, whether is it bodily injury/ property damages, hence a product liability insurance policy will be useful to offer assistance to legal defence and replacement/reinstatement cost to third parties

Product Performance failure will need to be rectified by the seller/ manufacturer as defined by contract or state laws. Neglience on the part of the seller will need to indemnify the buyer of possible losses as a result of direct use of the underlying insured product.
Damages can be further defined as legal cost, cost of repair/replacement/ reinstatment of the faulty product, and these costs will further strain the financials of the insured in operating their business should they not be covered under a comprehensive Product Liability policy.
Therefore precaution needs to be undertaken to ensure the smooth continuity of the business even if there is failure on the product, and product liability insurance protects the very asset that the company is dependent on for business growth

As long as you manufacture or sell products, you should seriously consider protecting your company with product liability insurance. 

Some types of businesses have significant exposure to / will frequently face product liability lawsuits:

  1. Automotive parts retailers/manufacturers
  2. Children’s toys and products retailers
  3. Medical device distributors
  4. Industrial machinery distributors
  5. Household appliance distributors

Sometimes, retailers/distributors of products think that because they didn’t manufacture what they’re selling, there’s no product liability that they’re responsible for. This is not true. As long as a product is defective, and causes harm to users, companies that make or distribute these products can face lawsuits. 

#1. In 2015, AVA (Agri-Food and Veterinary Authority) launched a product liability investigation into 4 brands of margarine being sold in Singapore. The manufacturers of the margarine had falsely claimed their spreads contained “zero trans fat”, which was not true as their products contained between 0.009g to 0.019g of trans fat. The manufacturers quickly rectified their false advertising. They could have been fined for their offence.

See: AVA takes regulatory action against false claims by margarine makers

Singapore does not have a single set of product liability laws. Instead, product liability cases here are dealt with using a mix of common law and tort law. 

For someone to sue your business for product liability, they would have to prove:

  1. Your product was defective
  2. Your defective product caused them harm
  3. You owed a duty of care to the victim

 

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