Imagine this: after years of negotiation, planning and logistical arrangements, you’ve finally launched a brand new business selling electric scooters that are specially imported from the United States.

Your launch goes extremely well, and you were able to make 100 sales on the first day. Fast forward to a few weeks later when customers have all received their scooters. You begin to receive complaints from them saying that the braking system doesn’t work as intended and appears faulty. Worst still, two customers who were riding on their scooters have suffered from serious injuries because of the failure of the brakes to work as intended. Demands have now been received from legal representation for these injured customers seeking financial compensation due to medical and rehabilitation costs they are incurring.

You might think you could just go back to the manufacturer in the US and have them deal with the situation. Unfortunately, that isn’t the case. If you import products from overseas into Australia, according to Australian law you are deemed the manufacturer of the product. This could leave you with significant legal and settlement costs as well as reputational damage to your brand. So, is there a way to get out of this pickle unscathed?

There sure is. It’s a (not so little) something called insurance. Luckily for you, this is something we can provide guidance on so keep reading!

Before you offer your goods to the public, you will need insurance as there are always risks involved when selling a product. We have all heard stories (like the example above) where a faulty product has caused injury, significant property damage, or in some cases, fatalities. In these situations, the business owner can often be held liable for all relevant costs and compensations, and potentially faces steep financial losses. If you’re a sole trader, this could severely impact your livelihood and have a negative impact on your personal assets.

To confidently sell your product to the public, you will need product liability which covers you for the damages a third party suffers as a result of using your product. Even when you have tested your product and deemed it to be safe, there is always a chance for something to go wrong when it is distributed to the consumer market. Consider the following example:

A claim was filed against the manufacturer of a “dunk tank” game popularly used at fun fairs. A school used the game for its annual carnival and while it was in use, the game malfunctioned and injured the person sitting inside the tank.

Many incidents occur beyond your control, but they could cost you hundreds of thousands or even millions of dollars if you don’t have the appropriate cover. Below, is what you need to know about product liability insurance:

What is product liability insurance?

Product liability insurance provides financial assistance to business owners in the event of a claim from a third party. It covers legal fees that may arise and some of the monetary cost of the compensations paid to the third party. This cover is especially important for manufacturers, wholesalers and retailers who distribute products in Australia but how the cover responds is always relative to your specific business activities. Remember, according to Australian law, you assume the responsibility as the manufacturer of a product that you directly import from overseas.

Does product liability insurance cover product recall?

Most product liability insurance policies does not cover product recall or product recall expenses. Having product liability insurance will cover any legal fees that arise from a product recall due to injuries sustained by a customer. Product recall expenses cover can sometimes be offered as an extension of the product liability policy. There is also a full product recall policy available separately from some insurers.

What can cause a liability claim?

In many cases, floodwater will firstly seep into your property via the entranceways, so it’s essential to make sure that the sealant of your doorways are in tip-top condition. For high floodwater, this may not keep the water out completely. However, suppose the floodwater level is low; this simple method can help keep most of the water from entering your property and potentially save you from a hefty repair cost.

A user of your product can make a claim against you if they are injured, or their property is damaged because of the following reasons:
• A fault in the manufacturing or production of a product. For example, an exposed casing of a power adapter that caused an electrical shock to the consumer.
• A defect in the design of the product. For example, a product that contains a hazardous chemical causing illness to the consumer.
• Defective warnings, instructions, or labelling error. For example, a heavy machine sold without clear instructions that led to customer injury caused by incorrect usage.

Is Product Liability insurance required by law?

No. Product liability insurance is not required by law. However, if you’re planning to lease a commercial property to store or distribute your products, then you’ll need a general liability cover which in most cases will include public and product liability.

While product liability insurance is not mandatory, claims arising from personal injury or property damage can be expensive. Therefore, having product liability insurance will relieve some financial stress in an event of a claim against you and your business and really should form part of the core of your insurance program if you are manufacturing or importing a product from overseas.

At the end of the day, protecting your business in the event of an accident gives you the peace of mind knowing that business can still go on as usual. Our team of experienced brokers will be able to find you the insurance that is most suited to the needs of your business. Contact a team member today using the details below.

1800 809 132
hello@ewib.com.au | www.ewib.com.au

Important Note: All insurance policies have exclusions. Please refer to the Product Disclosure Statement or Policy Wording to decide whether an insurance policy meets your needs.

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