Liability insurance for your business

In product liability insurance terms, a product is any physical item that is sold or given away.

Products must be 'fit for purpose'. You're legally responsible for any damage or injury that a product you supply may cause.

Your responsibilities

If you supply a faulty product, claimants may try to claim from you first, even if you did not manufacture it. You may be liable for compensation claims if:

• your business' name is on the product
• your business had repaired, refurbished or changed it
• you cannot clearly identify the manufacturer
• the manufacturer has gone out of business

Otherwise, the manufacturer is liable - or the processor, where the product involves parts from multiple manufacturers.

However, you must also:

• show that the products were faulty when they were supplied to you
• show that you gave consumers adequate safety instructions and warnings about misuse
• show that you included terms for return of faulty goods to the manufacturer or processor in any sales contract you gave to the consumer
• make sure that your supply contract with the manufacturer or processor covers product safety, quality control and product returns
• have good quality control and record-keeping systems

What is covered

Product liability insurance covers you against damages awarded as a result of damage to property or personal injury caused by your product. If damages are paid for personal injury, the NHS can claim to recover the costs of hospital treatment - including ambulance costs.

Product liability insurance also covers you against unforeseen circumstances, such as product faults your quality control system couldn't trace. However, if you simply make an inferior product, you may be unable to make a claim, or even get insurance. Bad workmanship is not covered either.

Before issuing a policy your insurer will want to know that your:

• manufacturing or services are carried out in line with industry best practice
• staff are adequately trained
• equipment and systems are appropriate, up to date and well maintained

How much cover to take out

Most businesses have cover of between £1 million and £10 million.

Having quality control measures in place may help to reduce your premiums - and will certainly reduce the risk of compensation claims and protect your reputation in the marketplace.

Read ABI (The Association of British Insurers) guidance on product liability insurance.