Product liability insurance is absolutely essential when we sell a product abroad or when we import dangerous items into our country: in the event of a manufacturing defect, it protects the company’s turnover from expensive claims.
In addition to damage to property and persons, we risk incurring expensive recall costs, especially when we have exported our product to countries where regulations to protect the health and safety of consumers may be stricter than in our territory.
In this article we offer a quick round-up of some recent serious product defect claims, an infographic on the industry sectors most affected by recall campaigns, and finally a mention of the new European product directive.
The increase in the number of players involved in the production chain, new technologies, international regulations to protect the health of consumers, who are increasingly aware of their rights to be enforced also through class actions, is pushing companies to consider very carefully the use of product liability insurance.
Our business partners and suppliers to whom we sell our products may ask to show if we have this specific insurance cover (hopefully) in the expectation that disputes, claims, and recall campaigns may involve everyone in the commercial chain.
“Why is product liability insurance so indispensable for my business?”
If our product, put into circulation, causes damage to property and persons, the end consumer -or his family members, in case of death- can turn to a lawyer and claim compensation for all damages.
If we are liable and insured against this risk, it is the insurance company that compensates the damage suffered by those who have taken us to court.
If, on the other hand, we are without this very important policy, we risk paying the defence costs and damages out of the company’s assets.
When we export abroad things get more complicated as there are countries, such as the US, where request of compensation may be very high, up to several million dollars!
For this very reason, I strongly suggest that entrepreneurs are well aware of the local health and safety law requirements of the country where they intend to sell their products.
In the chart below, some of the main international regulations are grouped together:
“As a manufacturer, how is it possible to qualify in advance my product as dangerous?”
To find out if the product manufactured by our company is dangerous, we can take a look at the table below, where the sectors most affected by recall campaigns are listed.
In addition to the damage caused by the defective product, companies should not forget that the equally high recall costs can be added.
The companies with the highest risk of compensation and recall from defective products are, in first place, those in the automotive sector.
In second and third place are those in the food and beverage and electronics sectors.
We pay close attention to the average value of recall claims, for each category, at the end of the table: over EUR 2 million per claim for the automotive sector, over a million for the food and beverage, IT and electronics sectors, over EUR 500,000 for retail.
These figures come in very handy when we ask ourselves how high the limits of product liability and recall policies should be.
It is obvious, numbers in hand, that it is better to spend a little more, but sleep soundly, if you will pardon the expression.
In the event of a serious claim, especially when we are called upon to answer before a foreign court for personal injury, having a large limit of indemnity can make all the difference, especially when, repetita iuvant, recall costs and legal fees are added.
“Food companies are among the most at risk of contamination claims: what is a recent claim that deserves our attention?”
The risk of compensation for very serious injury or death from food poisoning resulting from a simple labelling error is very high, as described here.
Recently, a 25-year-old British dancer lost her life due to an allergic reaction after eating a peanut biscuit, the presence of which was not declared on the packaging.
The ingredient was not stated on the label. The supermarket recalled more than 500 packages, claiming that the supplier had not communicated that it had changed the recipe.
“Moving from the food sector to the manufacturing sector, what is another recent serious incident?”
A short time ago, an entrepreneur lost his life inside his factory, crushed by over 15,000 wheels of Grana Padano cheese. It seems that the tragic event was attributable to the shelving, completely collapsed.
Those who manufacture shelving run the risk that their product may cause damage to third parties if it breaks and collapses.
But beware: it is always and absolutely necessary to distinguish case by case: overloading shelving, beyond the limits set by the manufacturer, can expose the end user to damage that cannot be compensated by the shelving manufacturer’s insurance.
The courts and the law speak of abnormal use of the product, which can exonerate the manufacturer from liability.
Again, I would like to point out that if we are insured, it is always the insurance company that protects our interests with its lawyers.
“Across Europe, the production of lithium batteries is increasing: what are the risks we face as distributors?”
The misuse or self-combustion of lithium batteries, whether at warehouses, sales points or during transport by road, can lead to very serious accidents such as a fire at the production site and business interruption damages.
Answering the question, we can give a practical example.
We are a distributor of electric bikes, some of which catch fire: our warehouse is unusable and, for obvious reasons, we can no longer deliver the goods, being completely destroyed.
We run a different risk if the bicycle fire occurs at the purchaser’s private home: in this case we can be called upon to pay compensation for all damage to property and persons, and in this case it is very useful to have a large limit of indemnity!
For more details, I refer you to the very detailed report by Allianz, where we can find a detailed case history of claims, accompanied by photographic material of the most serious accidents.
“On a statistical level, in which European countries have there been more recall campaigns for defective products?”
We answer this question by publishing another interesting infographic: in first place is Germany, followed by Poland, Croatia, Romania and Hungary.
We would like to point out that there are many silent recall campaigns, where the authorities and the press, for reasons of public safety and confidentiality, do not disclose the names of the companies obliged to recall their products.
The statistics on recalls, by year and country, are known while the names of the companies may be kept unknown.
“If I import goods from China, what risks may I face?”
European Commissioner Didier Reynders recently presented the annual report on dangerous items called ‘Safety Gate’: of all products marked as unsafe on the European market, 50% come from China.
Insurance against product defects protects us from high claims even when we import goods into our territory from foreign manufacturers that have not met standard quality and safety regulations.
“Is it possible to be insured against damage due to non-conformity of my product?”
It is necessary to distinguish case by case, given that not all insurance companies are willing to grant this guarantee.
From personal experience, I can say that only a few companies in the Visegrad area (Hungary, Czechia, Slovakia, Poland) are willing to do so, but only after a careful assessment of the level of dangerousness of the product we want to insure and the target markets.
This is a complex topic, to which I have dedicated a specific in-depth discussion here.
“What are the most important changes under the new Products Directive?”
The EU is updating the rules on liability for defective products. It is decided to broaden the current definition of a defective product by extending liability to software updates, artificial intelligence or digital services.
Thus, according to the new law, in addition to physical damage, the injured party will be able to claim compensation for psychological damage and medical treatment.
