Insurance can be a saviour for businesses
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.
First-party losses.
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."
Frequently Asked Questions about this Article…
Product liability insurance covers claims for injury or property damage caused to a consumer by a product your business has manufactured, installed or sold. The policy typically pays legal costs to defend a claim and can settle compensation costs, helping protect your company's balance sheet from potentially devastating liability.
Yes — the article describes Wingara Wine Group, where a consumer cut their hands opening a bottle distributed by the company. Wingara used product liability insurance to settle the matter for a small sum instead of facing an uninsured claim that could have been worse.
Public liability insurance generally covers injury or damage to third parties that happens on your premises or through your services, while product liability specifically covers harm caused by a product you made, installed or sold. Most insurers bundle product and public liability into the same policy, but the coverage focus differs.
Any business that manufactures, sells or supplies products should consider product liability insurance. The article notes insurers and business owners recommend cover even for low-risk products, since the ability to sue means unexpected claims can arise and insurance provides financial protection.
Products classed as higher risk typically attract steeper premiums. Examples cited include items for use by children, critical auto components (such as brakes), appliances that could be a fire risk, food products and pharmaceuticals. Insurers price policies based on the number and severity of risk factors a product presents.
According to the article, product liability insurance generally does not cover failure of a product to perform as intended, punitive or exemplary costs, negligence or legal liability of another party, asbestos or asbestos-containing products, aircraft or watercraft, damage to the product itself, or first-party losses.
Insurers set price and terms based on the specific product and its risk profile. Factors include how long the product poses a risk (for example, toys may carry long-term risk while short shelf-life food is a shorter-term risk), the number of potential risk factors, and whether the product is in a high-risk category.
Businesses should be upfront about the products they handle and promptly update insurers about any new products. That includes sharing how products are made, supplied or installed and details of quality assurance processes. The article warns that non-disclosure or misrepresentation can lead to rejected claims.
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