Product Liability in Singapore: 6 Must-Knows for Small Businesses
Selling a defective product to customers can create massive liabilities for your business. If your items injure someone, don’t function as intended, or were even misleadingly advertised, you can be sued for product liability.
The median settlement cost of a product liability lawsuit is $1.5 million. Could your business handle such a huge expense? Product liability lawsuits are incredibly expensive, and could easily bankrupt most small businesses.
Here’s 6 things you have to know about product liability, and how to reduce your liability risk to protect your sales, your reputation, and your livelihood.
What factors lead to product liability lawsuits?
Your business can be held liable for product liability if the victim can prove:
- Your product was defective
- Your defective product caused injury
- The product manufacturer, designer, or retailer owed a duty to provide the buyer with a safe product
It’s not only the consumer who directly buys your product who can hold you liable. Many third-parties can file lawsuits against you for product liability.
For instance, if someone gets injured in a bike accident because the bike’s brakes were faulty, they can sue the brake manufacturer for producing an item that didn’t work as it was supposed to.
In Singapore, your business can also be held liable for product liability by government regulators. This can occur if you use false/misleading advertising in your products.
#2. There are 3 types of defective products
A defective product is one that is not able to serve its original, intended purpose. Many products will have minor defects like cosmetic blemishes. However, the ones you should be concerned about are defects that could potentially cause harm to consumers.
The 3 main types of defects are:
- Design defects: The product’s design makes it fundamentally flawed, causing danger to consumers even when they use it as instructed. A famous example is the Ford Pinto, a sub-compact car that was sold in the 1970s. The Ford Pinto had an inherently flawed design that placed the car’s fuel tank in a vulnerable position, causing it to be prone to explosions if hit from behind. This design caused a string of deadly fires to occupants. Ford was hit with 117 product liability lawsuits, and the company lost many millions in damage payments awarded to victims, plus many uncountable millions in lost sales due to their tarnished reputation.
- Manufacturing defects: These occur when product manufacturers don’t follow the design blueprints correctly. These cause the product to become dangerous. In 2007, Mattel had to recall 967,000 toys in the US because their third-party manufacturer used lead paint to produce the toys. Lead paint is toxic, and has been linked to developmental issues in children who play with toys produced with such paint.
- Marketing defects: These occur when insufficient/inaccurate/misleading information or instructions are provided with the product. In Singapore, the Consumer Protection (Fair Trading) Act allows customers to sue companies who use false claims to advertise their products. In 2017, AVA (Agri-Food and Veterinary Authority) took action against 4 margarine brands for falsely claiming their products had “zero trans-fat”.
#3. Adopt a proactive approach to reduce product liability risk
Perform detailed quality control and product testing before selling it to retailers or consumers
If you design and/or manufacture products, make sure you run your products through many rounds of rigorous testing to ensure that it doesn’t cause its users harm. This is the most important stage of limiting liability that could affect many people – potentially millions, depending on what you’re selling. Repeated tests will likely expose most of the defects in a product, allowing you to correct them before they end up in the hands of the public.
If you’re a retailer, make sure you research the products you’re stocking before actually putting them up for sale. Do research about the ingredients or the source of the product to ensure it’s not dangerous. You’ll also want to test your products to ensure they live up to their manufacturer’s claims. You can test your products in-house, or send them to an independent laboratory or testing agency to certify that they meet advertised standards, and are safe to use.
Have proper product information labels
Don’t include misleading claims on your product labels. Don’t leave out important or legally-required information from your labels.
If your product has a risk of causing injury to users, make sure you have a warning label and a set of instructions for proper use. The warning you give must be adequate to protect all foreseeable users of reasonably foreseeable dangers of the product.
You should be specific and transparent about potential risks that come with using your product. This way, if users end up getting injured or sick, you’ll be able to mount a stronger legal defence by stating that you effectively warned users about the risks that may come with using your product.
Inspect and maintain manufacturing equipment thoroughly
Maintenance might seem like a dreary cost, but it really is an important investment to ensuring that your goods come out consistent, well-built, and above all, safe. If you don’t maintain your equipment, it might not function properly, and may introduce serious defects into your products.
#4. Inform your broker immediately if you get sued for product liability
If you get hit with a product liability lawsuit, make sure you inform your insurance broker immediately. Your broker will then inform your insurer. Reporting this in a timely fashion is important, because your insurer could deny you coverage if you don’t.
You should also quickly seek advice from a good lawyer who specialises in product liability cases.
Your lawyer may, among other things, advise you to:
- Gather documentation on all employees involved in manufacturing or selling the faulty product
- Retain some samples of faulty products
- Get employees and other relevant stakeholders to sign confidentiality agreements to protect any proprietary product knowledge
If you end up losing the product liability lawsuit, you’ll have to pay for legal expenses and damages. If you have product liability insurance, these costs will be covered for you by the insurance company.
#5. Take immediate action if you suspect product defects
Don’t wait until the defect results in someone getting hurt or sick. You need to act quickly before it’s too late. Defective products that end up harming your customers could cause irreparable damage to your reputation and your bottom line.
Here are some useful pre-emptive actions you can take to minimise your liability:
- Issue a public statement that you’ve discovered a defect in your product.
- Contact the distributors/retailers that sell your product, and inform them of the defect.
- Communicate to consumers a specific plan to rectify the defect. You may have to offer refunds, discounts, or some other compensation to assuage public anger.
- If the defect is serious enough, or could cause bodily harm, it’s best you issue a full product recall.
A case study of effective product liability management is how Toyota handled a fault in its hybrid vehicles. In 2014, Toyota issued a massive global recall of 2.4 million hybrid vehicles, after it discovered a defect that could cause the car to lose power. The recall was initiated before any accidents had actually occurred as a result of this power fault. As a result of Toyota’s swift and forward-thinking response, the carmaker avoided what could have amounted to tremendously destructive product liability lawsuits hitting it from around the globe.
#6. Protect your business from expensive product liability lawsuits
With the median product liability settlement costing $1.5 million, you’ll definitely want to have product liability insurance to protect your business. Small businesses could easily be bankrupted by such a massive cost.
Get yourself an online product liability insurance quote. You’ll get broad coverage, and save up to 25% on your premiums with Provide. Our online operating model creates lower overheads, so we pass every dollar saved back to you.
If your business manufactures products or sells goods, consider also investing in the following protection: