Product liability coverage for SME exporters and manufacturers

A major US automaker was involved in three of the biggest product liability payouts of all time, the latest having been in February 2014, based on faulty ignition switches that could shut off vehicle engines during driving, disable power steering and brakes, and prevent airbags from inflating. Other large claims have been made against cigarette manufacturers for causing cancer; and medical equipment makers for leaky silicone breast implants. Whilst most of the largest product liability episodes involve public companies, and are filed in the US, claims can happen almost anywhere. In October 2017, a private US medical supply and healthcare company was hit with a product liability problem involving its disposable contact lenses shipped to Japan, Taiwan and Hong Kong, necessitating the recall of more than 31,000 boxes.

Whilst the most common large-scale product liability cases tend to be vehicle- and health-related cases aimed at large manufacturers, SMEs are not immune. In Asia, typical SME cases involve medical equipment, toys and electronic goods either manufactured or transshipped via Hong Kong to the US, Canada or Australia.
“There has been an increasing awareness of consumer rights and a strong trend towards product liability. There has also been an increasing awareness of, and emphasis on, product safety and the remedies available to consumers through legal actions,” says Satpal Gobindpuri, Partner at international law firm DLA Piper.

Product liability claims
A 2014 US study revealed that product liability lawsuits typically receive higher personal injury jury awards than general liability or medical malpractice cases, with an average of $5,276,103 in funds vs an average award of $3,000,000 across all three categories.

Four out of 10 small businesses are likely to experience a property or general liability claim in the next 10 years, according to an analysis of The Hartford’s small business claims. If you are an exporter or manufacturer selling to the US, Canada or Australia, it is not a question of whether you will incur a product liability claim. It is a question of when.

“Product liability in any sector often involves high stakes. On top of the cost of product recalls, fines and compensation can be added the incalculable damage to reputations built over many years,” says Robert Clark, Partner, Deacon’s.

Sales or distribution contracts with large sellers in the US require the supplier to have Product Liability coverage. However, even without a contractual requirement, SMEs should recognise that the potential impact of not having the coverage is corporate suicide.

Consider when buying product liability insurance how much is needed; what markets are covered; the strength and reputation of provider; and what coverage is included.

Covered damages usually include bodily injury, accidental loss of or damage to third party property, design defects, improper instructions, manufacturing errors, and associated legal fees.

Finally, here are some tips to reduce premium costs:

Review your safety compliance measures
Product design, manufacturing processes, usage instructions and warning labels should be reviewed on a regular basis for compliance with the target export market requirements. This can lower the number of claims and the dollar amount you could potentially pay for safety-related claims. Good brokers can offer expertise, often at no additional charge.

Have insurance companies compete for the business
Since product liability insurance is varied in its pricing, small business owners should work with a broker to have multiple insurance carriers compete to offer the best policy at the best price.

Go with international insurance companies with experience in the chosen export markets
Local companies may offer cheaper premiums, but often do not have the knowhow or clout to help you with international claims investigations and settlement oversight.

Balance the deductible with the premiums
Make sure you understand to what the deductible applies. If your deductible is set against legal fees, for example, you may find yourself paying out a lot to lawyers, before your insurance coverage ever kicks in.