Insurance can be a saviour for businesses
It's the news no business owner ever wants to hear. A consumer is seeking compensation for injuries or property damages caused by a faulty product. But that's exactly what happened to Wingara Wine Group when a consumer who purchased a bottle of wine distributed by the company broke the bottle while opening it.
The consumer, who suffered cuts to their hands, pursued compensation from the wine company.
Wingara finance director Chris Pike said the business was able to use its product liability insurance to settle the matter.
"It was settled for a small sum of money," Pike said.
"Without product liability insurance it probably would have just been settled amicably. But it could have potentially been worse."
Most business owners know about public liability insurance, but less about product liability insurance.
Product liability insurance covers against claims of injury or property damages caused to a consumer by a product a company has manufactured, installed or sold.
Under Australian Consumer Law, consumers have the right to seek compensation for injuries or property damages caused by a defective product.
This product could be anything from a lollipop to a bike helmet.
The price and terms and conditions of product liability coverage all depend on the product itself.
Russell Toll, national manager of placement services at insurance brokers The Willis Group, says some products are classified in a higher-risk category than others and attract steeper premiums.
"High-risk products include anything that is for use by children, critical auto components such as brakes, appliances that could be a fire risk, food and pharmaceuticals," he said. "Insurance prices will depend on the number of risk factors the product could contribute or cause to a third party.
"For example the cost for a toy manufacturer may be higher than for a manufacturer of food with a short shelf-life. As long as the toy is there, the risk is there. Whereas the food is a short-term risk."
Dimitri Kontopos, co-founder of men's gift business malebox, said he purchased product liability insurance despite selling products at a low risk of injuring consumers.
"In this day and age with people being able to sue - whether it's successful or not is another thing - it's a good idea to have," he said.
"We don't see any risk at all in our products and we take care to make sure our products are safe, but you've got to protect yourself."
Most insurers bundle product and public liability insurance into the same policy. Product liability policies cover businesses for any legal costs needed to defend a claim for compensation as part of the coverage.
But Toll says there are some things product liability insurance will not cover:
Failure of a product to do what it is supposed to do.
Punitive and exemplary costs.
Negligence or legal liability of another party.
Asbestos or products containing asbestos.
Aircraft or watercraft.
Damage to the product itself.
Toll advises businesses to be upfront with their insurers about the products they are responsible for and update them about any new products. Make sure the insurance company knows about the processes used to make, supply or install the product, including quality assurance details.
Keeping any material details from an insurer can result in rejected claims, he warns.
"Where problems can come about is if there is a non-disclosure or misrepresentation," Toll says.
He recommends public and product liability insurance, even for businesses that sell low-risk products, to protect against the unforeseen.
"It shouldn't be ignored," Toll says.
"Product liability could have a devastating effect on a company's balance sheet, it could even wipe them out."