What insurance do I need to sell products online? A guide to product liability insurance.
In this guide, we explain what product liability insurance is, what is can protect you against and why online sellers may need it.
You’ve taken the plunge and decided to pursue your passion and dream of starting your own business, selling your artisan hand-crafted products online via your own website and social channels, and at makers markets and craft fairs.
What you do not want to encounter as you work hard to build up your new venture is a claim against you from a customer who has sustained an injury because of a product that you’ve sold to them.
That’s where product liability insurance comes in handy and offers protection to your business.
What is product liability insurance?
Product liability insurance is important cover for a business which sells or manufactures products, no matter how small the business may be. Cover is usually only available as part of a public liability insurance package.
Product liability insurance is important for anyone who sells products, whether it be online or over the counter, because the seller is the first point of call for a customer if something goes wrong, and is therefore liable to be the subject of a claim.
If a product you sell causes an injury or property damage you could be held liable, even if you were the reseller and didn’t manufacture the product yourself.
What does product liability insurance cover?
Product liability insurance will cover your business if a customer makes a claim because of a faulty product you have sold to them which has caused injury or damage. The policy will cover legal fees and other costs associated with the claim.
A compensation claim can be made against a manufacturer within three years of using a product. Claims are treated on a case-by-case basis, which means some cases are calculated based on their severity and the amount of loss incurred by the claimant.
As a result, you must consider the level of cover you need to ensure you are not underinsured.
Why do I need product liability cover?
Product liability cover is important because you don’t have to be a manufacturer to benefit from the protection the policy offers. If you sell, import, or repair products, you could be held liable in the event of a claim.
You will need product liability insurance if:
- You make products. This can be hand-crafted furniture, artwork, or even cakes and confectionery.
- You commission the manufacture of a product.
- Your business name appears on a product, whether you made the product or you’re simply a reseller of the product.
- You run a business that repairs or repurposes products for reuse.
- Your business imports materials, components or products from outside the European Union for sale in the UK.
- You have a ‘hold harmless’ agreement with a supplier. A ‘hold harmless’ agreement is a legal agreement between parties that states that one party will not hold the other liable for risk, danger, injury, or damages caused to the other party.
- The manufacturer of the product/s you sell has gone out of business. In this instance, you as the seller of the product could be held liable in the event of a product liability claim.
The maker of a faulty product will ultimately be liable, however, in the event of a claim you as the reseller will likely be asked to present evidence that the product/s were faulty when they were supplied to you.
Examples of companies that benefit from holding product liability insurance includes: manufacturers of tools, machinery, white goods, and artisan makers and sellers of items such as works of art, hand-made furniture, items of clothing, cakes and other foods.
Regardless of what you make and/or sell, it is important to make sure your business and your livelihood are protected.
When could a customer make product liability a claim against you?
- You make bespoke, hand-crafted items of furniture which can be heavy, such as sideboards, tables and chairs. If one of the items you made and/or sold breaks it could cause an injury, resulting in a claim.
- You’re an artist who produces handmade jewellery from your own small studio. A necklace you sell to a customer snaps, resulting in the customer choking on one of the chain links.
- You run a cake-making business and supply your goods for birthdays, weddings, and other celebrations. A customer accidentally chokes on a foreign object that has accidentally become embedded in one of your cakes, resulting in hospital treatment.
In these instances, product liability insurance would cover your legal fees for the claim and compensation awards you are liable for.
How much product liability insurance do I need?
It’s your responsibility to ensure you carry enough cover to insure your business. The amount of cover you need will depend on the products that you manufacture/sell/import/repair, as some products will be more prone to risk of failure than others.
For a self-employed online crafts seller, your level of cover may not need to be high to cover a faulty handmade product. On the other hand, if you’re a large scale manufacturer, then a faulty product range that’s sold on a national scale can result in compensation awards that cost millions of pounds.
Things to consider when purchasing product liability cover include:
The impact of potential claims – You need to ask yourself if the level of insurance is sufficient to cover a compensation claim if the product causes injury or property damage?
Your contractual obligations – If you are required to hold a specific level of cover for a contract you have with a client, then you must ensure that stipulation is adhered to.
What are the exclusions to cover – It’s important to know exactly what your product liability policy excludes cover for to ensure you have the right level of insurance to cover your business and your products.
Your own quality control measures – If your product liability insurance states certain quality control measures need to be in place you will be required to adhere to these to ensure your cover will respond in the event of a claim.
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