Product liability insurance. For the day something you made, imported or supplied hurts somebody a long way from your factory.

Quick answerProduct liability insurance pays the compensation you're found liable for, and the legal costs of defending the claim, when your goods injure somebody or damage their property. On the wordings we see it does not pay to fix, replace or recall the product itself. Manufacturers, importers and suppliers, ring us on 07 3292 1111.

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Your product stops being in your hands the moment it leaves the loading dock. Your liability for it does not.

If you are insuring a home or a car rather than a business, start here instead.

You built it, or grew it, or bottled it, or brought it in on a container and put your label on it. It sold. Months later it is in a house, a kitchen, a workshop or a childcare centre you have never seen, being used by somebody who has never heard your name, and it fails. That is the moment product liability insurance exists for, and it is also the moment most business owners discover that the limit protecting them is not the one they thought it was.

What does product liability insurance actually cover?

Quick answerProduct liability insurance covers your legal liability when something your business made, grew, processed, repaired, sold, supplied, distributed or imported injures somebody or damages their property after it has left your hands. The defence costs are funded even where the claim ultimately fails. What the policy will not do is put the product right: repairing, replacing or recalling it stays your cost.

The first thing worth knowing is how broadly the word "product" is written. Owners tend to picture a factory, so a business that buys goods in and sells them on assumes none of this is about them. Read the definition on the liability wordings we place and it covers anything manufactured, grown, extracted, processed, treated, altered, modified, repaired, serviced, bottled, labelled, handled, sold, supplied, re-supplied, distributed, imported or exported by you or on your behalf. The packaging counts. So do the instructions, the markings and the warnings that went out with it, including the warning you did not give.

That last point does more work than people expect. A claim does not have to be about a manufacturing fault at all. An item can do exactly what it was built to do, and the case can still be that nobody was told clearly enough what it could not do, what it must not be used with, or how it had to be installed. The design, the specification and the label are all part of the product for insurance purposes, which means the person who wrote the instruction sheet was doing safety work whether they knew it or not.

What the policy responds to is the harm your product causes to a person or to somebody else's property. A customer injured by a machine that failed. A kitchen damaged by an appliance that overheated. Somebody made ill by a batch that should never have shipped. The policy pays what you are legally liable for, and it funds the defence even where the claim eventually collapses, which matters more than it sounds, because a claim you win still has to be defended and lawyers are not free.

Three things it does not do, and each of them surprises somebody every year.

It does not pay to replace the product itself. The wordings we see exclude property damage to your own product where the damage was caused by the fault in it, and generally limit that exclusion to the defective part. In plain terms: if a faulty component makes an oven catch fire, the policy is there for the burnt kitchen and the injured person, not for the oven.

It does not pay for a recall. That is set out in its own section below, because it is the single most expensive misunderstanding on this page.

It does not stand behind the guarantee you gave. A warranty or performance guarantee you offered your customer is a commercial promise, not an insured liability, and it is commonly excluded, with a carve-out only for the guarantees product-safety legislation requires of you. A product that simply underperforms and disappoints is a contract problem. A product that hurts somebody is an insurance problem.

Where does product liability stop and public liability start?

Quick answerPublic liability answers for harm connected to your premises and your activities, such as a customer who trips in your yard. Product liability answers for harm caused by your goods after they have left you, often years later and somewhere you have never been. Most business policies sell the two together as public and product liability insurance, which is why owners routinely believe they hold one cover when they hold two.

The simplest way to hold them apart is to ask where the harm happened and what caused it.

If somebody is hurt at your site, or by your people while they are doing their work, that is public liability. If somebody is hurt by your goods once your part in it is finished, that is product liability. A visitor who slips on a wet floor in your factory is a public liability claim. The same visitor injured six months later by a unit that came off the line that day is a product liability claim, and it can arrive a very long time afterwards.

That distinction is not academic, because the two halves are usually written with different limit structures, which is the next section and the most important thing on this page.

What the full public liability side covers, where it stops, how the employee-injury boundary works, why it never pays to redo your own faulty workmanship, and what your lease or contract actually obliges you to hold are all set out on our public liability insurance page, which is the home of the bundled policy. This page does not repeat any of it.

And if a client's loss came from advice you gave or a service you were engaged to deliver rather than from a physical product, neither of these policies is the answer. That is professional indemnity insurance, a different policy for a different kind of mistake.

The risk almost nobody is shown: one bad batch against one annual limit

Quick answerIn many bundled policies the public liability limit applies per occurrence, while the product liability limit is an aggregate: the most the insurer will pay for every product claim combined in one policy year. A single widespread batch failure can therefore produce dozens of claims that all eat the same limit, and the business is exposed for everything after it runs out.

This is not hiding in obscure fine print, and a business can hold the same certificate for years without ever having it pointed out. It sits in the limits clause on the front pages of the liability wordings we place, and it commonly reads like this: for public liability, the limit is the most payable for any one claim or series of claims arising out of any one occurrence. For product liability, the limit is the most payable for any one claim and in the aggregate for the whole period of insurance.

Read those two lines next to each other and the difference is stark. The public liability limit refreshes, in effect, event by event. Two unrelated incidents in one year each get the full limit behind them. The product liability limit does not. It is one bucket for the year, and every product claim drinks from it, no matter how many there are or how unconnected the victims are to one another.

Imagine a contaminated batch running through that structure. A production run goes out wrong, reaches distributors, and from there reaches end users, long before anybody connects the incidents. The claims would not arrive as one event. They would arrive one at a time, from strangers in different states, over a year or more, and every one of them would be drawn against the same annual figure. Defence costs commonly sit on top of the products limit rather than inside it on the wordings we place, but the compensation itself comes straight out of it. A limit that looked generous the day it was chosen can be gone before the pattern is even understood, and claims arriving after it is exhausted have nothing behind them but the business itself.

That is why "we have got a bundled ten million dollar policy" is an answer that needs a second question attached to it. Ten million per occurrence for public liability and ten million in the aggregate for products are two very different sums insured wearing the same number. Whether your products limit should sit above your public liability limit, and whether the answer changes because of what you make and how far it travels, are the questions worth asking before a batch asks them for you.

Who pays for a recall? Usually not this policy

Quick answerProduct liability pays for the harm a faulty product causes. It does not generally pay the cost of getting that product back. On the wordings we see, the withdrawal, recall, inspection, repair, replacement and loss of use of the products themselves are excluded, and the policy separately obliges you to trace and recall a product you know or suspect is defective at your own expense.

For a food producer, a cosmetics business, a toy importer or anyone selling anything that goes into a body or into a child's hands, this is the exposure that keeps owners awake at night, and it is the one most commonly assumed to be covered.

Picture how a contamination event actually unfolds. A batch is wrong. Perhaps an allergen was not declared on the label, perhaps a cleaning agent got into a line, perhaps a supplier substituted an ingredient without telling anybody. People get sick. Two entirely separate bills land at once.

The first bill is the harm: the people who were made ill, their medical costs, their lost income, their legal representatives. That is what product liability insurance is built for, and it responds.

The second bill is the operation of getting the product back. Identifying every batch code, tracing where it went, telling the retailers, telling the public, pulling stock off shelves, the freight, the destruction, the extra staff, the media handling, and the trading you lose while you do all of it. That bill is serious money for a small business, and on a standard public and products liability wording it is excluded, in a clause usually titled Product Recall. Worse, a separate condition in the same policy requires you to take reasonable action to trace, recall or modify a product you have reason to suspect is defective, expressly at your own cost. So the policy obliges you to run the recall and does not fund it.

The cover for that second bill exists. It is a different product, product recall cover, sometimes available as an extension and sometimes as a policy in its own right, and whether a business needs it is a real conversation rather than an automatic yes. What is not acceptable is finding out during the recall that it was never bought. If you make, import or supply anything consumed, applied to skin, or used by children, ask your broker specifically where recall costs sit on your programme, and get the answer in writing.

Do importers, wholesalers and suppliers carry product liability for goods they did not make?

Quick answerYes, commonly. A business that brings in goods it did not make can still end up carrying product liability for them. The cover is written to match: on the wordings we place, your products are defined to include goods you imported, distributed or supplied, not only goods you manufactured.

This is the single most misunderstood position in this whole subject, and it is held by a very large number of otherwise careful business owners. The reasoning sounds unanswerable: I did not design it, I did not build it, I did not test it, I bought it from a supplier and sold it on, so surely the liability follows the person who made it.

The plain position is the one worth holding on to: a business that brings in goods it did not make can still end up carrying product liability for them. The insurance side already assumes it. The definition of your products on the wordings we place expressly includes goods sold, supplied, re-supplied, distributed and imported by you, not only goods you manufactured. The cover is there. What is often missing is any recognition that the business needs it, sized for what it actually brings in.

Three groups are most commonly caught by this:

Importers, especially those buying from overseas manufacturers with no Australian entity behind them. The further away and the less substantial the maker, the more likely the claim ends up with you.
Wholesalers and distributors, who never see the inside of a factory but whose name is on the invoice and, often, on the box.
Businesses that private-label, where somebody else makes it and your brand goes on the front. To the customer who is hurt it is your product, and on the wordings we place it is your product too.

If any of that describes you, the practical question is not whether you are exposed. It is whether the limit you hold reflects the volume you bring in and the harm your goods could plausibly do, and whether anybody has ever actually asked you what is in the containers.

How we do it differently

Quick answerWe start with what your goods could actually do if they fail rather than with what your business is called, check the products limit as a separate number from the public liability one and say out loud which is per occurrence and which is in the aggregate, ask where the goods end up after you sell them, and ask what happens if a whole batch has to come back, because that decides whether recall cover belongs on your programme.

An online liability quote asks what your business does and what it turns over, then produces a number. It will not ask what proportion of that turnover is goods you imported rather than goods you made. It will not ask whether your products limit is per claim or in the aggregate. It will not ask whether anything you supply ends up in North America. Those three questions are where product liability insurance goes wrong, and they only get asked by somebody who is looking at your business rather than filling in a form about it.

When we place or review a policy for a business that supplies goods, we start with what the goods can actually do if they fail, not with what the business is called. A business that assembles steel brackets and a business that bottles a food product can sit under the same occupation heading and carry completely different exposures, and rating by name gets that wrong every time.

We check the products limit as a separate number from the public liability limit, and we say out loud which one is per occurrence and which one is in the aggregate, because a client who has never been told that has no way of judging whether the figure is enough. We ask where the goods go after you sell them, since the standard territorial cover on these wordings commonly picks up products that reach North America without your knowledge, while goods you knowingly export there generally need cover confirmed on the schedule as a specific extension. That is exactly the kind of clause a business discovers by accident, usually after landing its first American customer and telling nobody.

And we ask what happens if a whole batch has to come back, because the answer decides whether recall cover belongs on your programme. Sometimes it does not, and we will say so. Nobody is well served by being sold cover they do not need, but nobody survives finding out during a recall that it was available and never mentioned.

We can put your liability in front of a panel of insurers competing for the risk. On a product risk, that width matters more than usual: appetite for what you make varies enormously between insurers, and the insurer who wrote last year's policy is not automatically the one who wants this year's.

That is the difference. Not a cheaper number. Somebody who reads the limits clause before a claim does it for you.

What actually drives the price of product liability cover

Quick answerProduct liability is not priced off your industry name. It is priced off what your goods could do if they fail, how many of them are out there, and how far they travel. Two businesses with the same turnover and the same occupation code can sit a long way apart on price for reasons that are entirely rational once they are explained.

The factors that move it most, in rough order of weight:

What the product is, and what happens when it fails. Anything eaten, drunk, applied to skin, given to children, worn as safety equipment, built into a structure, or carrying an electrical or mechanical hazard sits at the sharp end. Inert, low-consequence goods sit at the other.
How much of it is out there. Turnover is a proxy for the number of units in circulation, which is a proxy for how many people your worst day could reach.
Whether you made it or moved it. Manufacturing, importing, distributing and private-labelling are rated differently, and the importer position described above is a real underwriting consideration, not a technicality.
Where it ends up. Export exposure changes the picture, and North America changes it sharply, because the legal environment there is a different animal.
How well you can trace it. Batch coding, quality control, supplier auditing and a written recall plan are things an underwriter will genuinely take account of, because they decide how contained a bad batch can be kept.
Your claims history, and how the ones you have had were handled.
The limit and structure you choose, including whether the products limit sits above the public liability limit.

Nobody can give you a real figure for this without knowing those things, and any number offered before they are asked about is a guess with a decimal point in it. What public and product liability costs in general, factor by factor, is set out in our guide to how much public liability insurance costs.

Who needs product liability insurance

Quick answerAny business whose goods end up in somebody else's hands needs product liability cover. That takes in a great many businesses that never manufacture anything, because supplying, importing, distributing, retailing or putting your own brand on somebody else's product all carry the same exposure. The test is not whether you made it. It is whether your business is the one that put it into somebody's hands.

Manufacturers and processors, the obvious case, from engineering workshops to production lines.
Food and beverage producers, where contamination and allergen labelling are the defining exposures and a recall is the defining cost. See also business interruption insurance for what a shutdown does to the trading side.
Importers, for the reasons set out above, whether or not they ever see the factory.
Wholesalers, distributors and suppliers, including businesses whose only role is to move goods from one party to another.
Retailers, who supply goods to the public every day and can be pulled into a claim about something they merely sold. See retail insurance.
Warehousing and logistics businesses handling other people's goods, where the handling itself can become part of the product's history. See warehouse insurance.
Trades and builders who supply and install materials, where the supplied item and the workmanship are separate questions with separate answers. See trades insurance.
Businesses that private-label or rebrand, where your name on the box is what the injured person sees.

For most of these businesses the cover sits inside a broader pack rather than standing alone. See business insurance for the pack it usually lives in, and general liability insurance for what happens when a liability risk outgrows a packaged policy and has to be underwritten on its own.

Common mistakes

Quick answerOn the wordings we place, the mistakes that catch suppliers are assuming the bundled limit is one number, treating an importer as a middleman rather than a supplier, believing the policy funds a recall, rating the risk off the business name, forgetting how long the exposure lasts, letting an export sale change the risk without changing the policy, and treating instructions and labelling as a marketing job.

Assuming the bundled limit is one number. It is commonly two, structured differently, and the products half is usually the aggregate one. If you have never been told which is which, you have never been in a position to judge whether the figure is enough. Ask the question in those words: is my products limit per claim or in the aggregate for the year.

Thinking an importer is a middleman rather than a supplier. A business that brings in goods it did not make can still end up carrying product liability for them, and on the wordings we place your products are defined to include goods you imported or supplied, not only goods you made.

Believing the policy funds a recall. It generally does not, and the same policy obliges you to run one at your own expense when you suspect a defect. Recall cover exists as a separate thing. Ask where it sits on your programme before you need to know.

Rating the risk off the business name. Two businesses under the same occupation heading can carry wildly different product exposures. If nobody has asked what your goods actually do when they fail, your cover has been priced off a label rather than a risk.

Forgetting that the exposure has a long tail. Something you supplied this year can produce a claim years from now, long after the invoice is closed and the batch is gone. On the bundled wordings we place, the cover that answers is generally the one that was in force when the harm happened rather than the one you hold when the letter arrives, so a gap in cover reaches back over everything you have ever shipped. That timing mechanic is set out in full on our public liability insurance page, which is its home on this site.

Letting an export sale change the risk without changing the policy. Selling into North America knowingly commonly needs that cover confirmed on the schedule rather than assumed. Tell your broker before the first container leaves, not after the first letter arrives.

Treating instructions and labelling as a marketing job. The warnings, markings and instructions supplied with a product are part of the product for insurance purposes. A safe item sold with an inadequate warning is a product liability claim waiting to be made.

Common questions

Product Liability Insurance Australia: your questions answered

What is product liability insurance?

Product liability insurance covers your legal liability when something your business made, grew, processed, repaired, sold, supplied, distributed or imported injures somebody or damages their property after it has left your hands. It pays the compensation you are found liable for and the legal costs of defending the claim, including claims that ultimately fail.

The part most owners have not been told is how widely "your product" is defined. It is not just what you manufactured. It takes in goods you supplied, distributed or imported, the packaging they came in, and the instructions, markings and warnings that went out with them. A safe item sold with an inadequate warning can still be a product liability claim.

Is product liability included in public liability insurance?

Usually yes, in the sense that most business policies write public and product liability into the same section, which is why so many businesses hold both without realising they hold two. What is not usually the same is the limit. On most of the wordings we place, the public liability limit applies per occurrence, while the product liability limit is an aggregate, meaning it is the most the insurer will pay for all product claims combined in one policy year.

That is the number worth checking. A bundled policy showing a single figure can be two very different sums insured behind one line on a certificate. What the public liability half covers is set out in full on our public liability insurance page.

Do importers need product liability insurance?

Yes, and it is the group most likely to assume the opposite. A business that brings in goods it did not make can still end up carrying product liability for them. The cover is written to match: on the wordings we place, your products are defined to include goods you imported, distributed or supplied, not only goods you manufactured.

It applies just as much to wholesalers, distributors and any business that puts its own brand on somebody else's product. The question for an importer is never whether the exposure exists. It is whether the limit matches the volume being brought in and the harm those goods could plausibly do.

Does product liability insurance cover a product recall?

Generally no, and this is the most expensive misunderstanding in this area. Public and products liability wordings commonly carry a product recall exclusion covering the withdrawal, recall, inspection, repair, replacement and loss of use of the products themselves, while a separate condition obliges you to trace and recall a product you suspect is defective at your own expense.

So the policy pays for the people your product harmed, and does not pay for getting the product back. Recall costs need their own cover, available as an extension on some programmes and as a standalone policy on others. If you supply anything eaten, applied to skin or used by children, ask specifically where recall costs sit on your programme and get the answer in writing.

What does product liability insurance not cover?

Three things catch people out. It does not pay to repair or replace the faulty product itself, since the wordings exclude damage to your own product caused by the fault in it, generally limited to the defective part. It does not fund a recall. And it does not stand behind a warranty or performance guarantee you gave your customer, other than the guarantees product-safety legislation requires of you.

The line to hold on to is that a product which simply underperforms is a contract problem, and a product which causes injury or damage is an insurance problem. Pure financial loss from advice or a service, rather than from a physical product, is professional indemnity insurance territory instead.

How much product liability cover should I carry?

There is no single right answer, but there are three inputs that decide it. What your goods could realistically do at their worst, how many units are in circulation, and what your customers and contracts require of you. Where a supply agreement sets a minimum limit, that figure is a condition of doing business rather than a suggestion, so it is worth reading before you renew.

Because the products limit is commonly an aggregate, the sizing question is different from the public liability one. You are not asking what one bad day costs. You are asking what a bad batch costs across a whole year of claims, which is usually a larger number than the first instinct.

Does my policy cover products I sell overseas?

Usually, with one important exception. The standard territorial cover on these wordings commonly extends to products that reach North America without your knowledge, but goods you knowingly export there generally need that cover confirmed on the schedule as a specific extension, and it is priced separately for good reason.

It is a genuine trap for a growing business, because nothing about winning an American customer feels like an insurance event. Tell your broker before you ship, and check what your policy says about where your goods are allowed to end up.

Do I need a broker for product liability insurance?

This is a cover where the number on the certificate tells you less than you think. Whether your products limit is per claim or in the aggregate, whether recall costs sit anywhere on your programme, whether your export markets are actually inside the territorial cover, and whether the risk was rated off your occupation name or off what your goods really do are the four things that decide whether the policy protects you, and none of them appear on a comparison form. The wider comparison between using a broker and buying direct is on Why Use an Insurance Broker.

Where to go next

Find out what your products limit really is, before a batch finds out for you.

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