Risk Management: Understanding Product Liability and Product Liability Insurance

Besides pushing for sales and profits, risk management is inevitably one of the most important aspects of running a business. We have previously explained what public liability is and whether a business should get public liability insurance. Product liability holds a largely similar concept, except pertaining specifically to incidents involving defective goods or products.


What is product liability

If bodily injury or damage to property is suffered due to the manufacture, distribution, or supply of a defective product, then liability arises and the injured party may be entitled to compensation. In fact, some of the biggest lawsuits that have resulted in massive amounts of compensation have been product liability claims.

Damage or harm may be caused due to reasons such as defective designs, like silicone breast implants that ruptured, making women sick, and resulting in a US$3.2 billion settlement. Another reason could be manufacturing flaws, like when the ignition switches in vehicles were faulty, causing engines to shut off while in motion, causing General Motors to pay over a hundred million dollars in compensation. Liability can also be incurred from a failure to warn consumers of potential risks and dangers of using a product, as seen in 2002 when Philip Morris was ordered to pay a whopping US$28 billion in compensation for failing to adequately warn consumers of the dangers of smoking.

As a general principle, all parties involved in the chain of distribution of an injury-causing product can be liable. This includes manufacturers, distributors and suppliers, as well as retailers. More than one defendant can be named in a product liability claim, thus alleging joint liability.


Product liability laws in Singapore

As with public liability, there is no specific law in Singapore that exclusively covers product liability. However, there are legislations passed which statutorily imply multiple terms in goods and services contracts for the sake of consumer protection. As such, compared to public liability, there are more contractual claims available. Public liability can also be claimed through tort, especially for negligence.

Generally speaking, suppliers and sellers are more likely to face claims for breach of contract (for selling a defective product). Manufacturers would usually be sued for negligence in tort as there is seldom a contractual relationship between a manufacturer and an end user.

Establishing a case for negligence involves establishing that one party owes another a duty of care, did not perform this duty adequately enough, and subsequently caused harm to be done to the latter party. Some restrictions on negligent liability may be imposed to exclude it from a claim, but liability for death and injury cannot be avoided.

Claiming damages under contract would require a contractual relationship between the parties to be established, and that the contract included terms relating to the quality or condition of the goods. The seller must then be proven to have breached those terms. These terms might be agreed upon by the parties themselves, but there are also implied terms that are set by statutes.

Examples of this include the Sale of Goods Act, the Supply of Goods Act, and the Unfair Contract Terms Act, which work together to create a basic framework for all contracts involving the sale of goods in Singapore. Under these Acts, goods sold must be of satisfactory quality, matching the description of them provided prior to an agreement, and this guarantee cannot be restricted or excluded from the contract by the seller.

There are also more specific statutes concerning different types of products, such as the Sale of Food Act and the Health Products Act.

All in all, laws set in a wide range of industries protect the consumer, but vastly increases the risk of liability for businesses. Business owners should thus take steps to minimise this. This is especially true for small business owners; it has been reported that the average cost of settling a product liability lawsuit in Singapore is S$1.5 million. This would easily decimate most small companies.


Limiting the risk of product liability

Product liability claims are less unpredictable than public liability ones. While it can be difficult to account for negligence, a business can and should be doing its utmost not to run afoul of its obligations relating to product quality and safety.

Manufacturers must perform rigorous quality control and product testing on a product to ensure that it is not dangerous or defective before releasing it for sale. Retailers and suppliers should conduct extensive research on any products they are stocking to ensure as much as possible that said products are legitimate and safe.

Pay attention to product information labels to ensure that the necessary information is being provided in accordance with legal requirements. Proper warnings and instructions should be provided if there is any risk that comes with using the product.


Product liability insurance

Aside from taking steps to avoid product liability, a business should also consider taking up product liability insurance.

Simply put, product liability insurance covers your business from legal liabilities arising from bodily injuries or damage to property caused by your defective product. This applies whether your business is manufacturing it or selling it.

As with public liability insurance, there are variables to consider, such as the nature and size of the business, as well the inherent risks involved with the business operations. These will determine the limit and cost of your coverage.

Geographical or territorial limits are also relevant. In the age of globalisation, insurance companies would not fail to expect that a manufacturer or distributor would have its business operations span across multiple countries. Coverage can be set accordingly, as will the corresponding premium that needs to be paid, naturally.


Who should get product liability insurance?

As long as you are a business that is making, selling or distributing a product, getting product liability insurance would be most prudent.

Business sectors that regularly get product liability insurance in Singapore include:

-        Manufacturing industries

-        Distribution businesses

-        Retail industries

-        Food & Beverage industries

-        Automobile industries

-        Medical Device businesses and Pharmaceuticals

-        Power and Energy companies

-        Logistics companies

Business insurance packages

Some insurance providers offer comprehensive business insurance packages which would include product liability. These are generally more value-for-money than purchasing a standalone product liability insurance, especially since these packages also cover other extremely important areas such as fire and goods in transit. These packages usually pertain to retail shops, F&B establishments, wholesalers as well as manufacturing and warehousing companies.

As such, those looking to set up a new business in any of these areas would do well to consider business insurance package options that include product liability coverage. Want to get a quote for your company’s Public Liability insurance policy? You can fill in the Interest Form here! Read also: 7 Key Changes to the Work Injury Compensation Act (WICA) That SMEs Need to Know: Effective From 1st September 2020 Read also: COVID-19: How to Reduce Your Company Insurance Costs During This Pandemic Read also: Business Planning: What is Keyman Insurance and Why Do You Need It?
Read also: What is Public Liability Insurance And Should Your Business Get It?

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