Plan Insurance Blog

Product Liability – What is it and Why is it Important?

As businesses continue to grow in both size and production volumes, their responsibilities and risk also increase. All it can take is for a single piece of product outputted from your business to be exposed as defective, and for you to be found liable for it, and then suddenly you could be facing public criticism, government investigations, product recall and possible irreversible financial or reputational damage.

What are Product Liability Claims?

The three main types of product liability claim include:

  • Defectively manufactured products
    This type of claim comes from damage caused by a product that was defective upon its creation, which could form a malfunction or problem at a factory. An example of defectively manufactured products might include a car that is missing its brake pads when leaving the factory.
  • Defectively designed products
    A defective design claim is from the actual design of a product, which thereby makes it defective before it has even been made or taken off a supply line. Examples of these types of claims could be from a children’s toy that has choking hazards, or a vehicle that is too top-heavy and therefore is likely to roll over.
  • Providing inadequate instructions or warnings
    Claims of this nature argue that a product did not come with suitable instructions or warnings in regards to how it should be used or operated properly.

These claims will often centre on products that carry an alleged risk. Ones which are either not obvious to the user or demand any extensive safety precautions for the product to be used. Claims of this nature might include medicine that does not have all potential side effects listed on the label or a cleaning chemical solution that does not come with any instructions for handling and using it safely.

Product Liability issues and claims can be very damaging for business; therefore, it is vital you take precautions in order to protect both your company and your customers.

How to protect against the transfer of the risks to your business

Businesses have to consider many risks from general day-to-day operations without also having to worry about those of other organisations. Therefore, having effective risk transfer programs in place, allows your business to avoid responsibility for liability claims caused by others outside of your business.

When working with suppliers, partners and other contractors, your business should have written legal agreements in place before the business relationship starts. If you do not have any agreements in place, it is possible that judgements regarding who is liable for a product liability claim could be decided in court and taking out of your control.

How to deal with Imports and Exports

If your business is involved with exporting or importing products, raw material or components, that are ultimately transferred to another party, you could be held fully responsible for the products not complying with certain safety standards.

In these situations, you may be the party charged with not only checking that the product meets industry standards, government regulations and are compliant upon its arrival, but you could also be held liable if the appropriate warnings, labels and instructions are not provided for the next recipient after you pass on the goods.

Due to the gravity of these responsibilities, your business should take the time to communicate fully with your suppliers about any relevant information that could relate to product liability should a claim arise later on.

Safety should be prioritised

One of the best ways to limit defects within your products is to have the safety of the end user in mind from the very beginning of the product design.

At the start of your design process, your business should always consider making the product safe and reliable. This should include conducting safety assessments during the design process that consider the specific purpose of each part and what risks may arise from its use.

Also, during your design process, be certain to reference your product against government regulations and industry standards. This needs to include providing clear instructions, warnings or labels for each product, and to continue carrying out safety reviews even after the product is out in the market in order to be sure that it has continued to keep up with current standards.

Record keeping and its importance

Even with the correct safety measures and proper procedures in place, your business could face a product liability claim.

One of the best ways to be equipped for such a situation is to have detailed records easily available if needed.

The documentation you should back-up electronically and secure includes:

  • Customer specifications and designs
  • Product orders which include any third party supplies
  • Confirmation of customer sign-offs on the final designs
  • Full written procedures and instructions, relating to the products manufacturing method
  • Details on the quality control stages

Your business should have a document retention policy, to ensure you are always prepared in the event you must defend against a products liability claim.

Feedback from Customers in important

The approval of your customers will no doubt be a key footing of your business’s success. So naturally, you will put a large amount of value in what you hear back about your products. However, listening to feedback is not only an imperative step in improving your products for the future, but it is also a vital part of knowing if a product already out there may be defective or even hazardous.

In the event that a defective product reaches customers, it can still be possible for organisations to avoid major consequences, such as the negative publicity of a product recall. These situations can often be avoidable if your business is being thorough in reviewing complaints and responding to criticism.

Hearing about potential defects from customers before the product causes harm or the issue reaches the wider public can save your organisation a great deal of money, trouble and time. As such, consider taking the time to provide customers with easy feedback systems, which allow them to ask questions or share concerns, and ensure you, monitor these closely.

Need more help?

Product liability can be a complex subject, but its one that businesses should take the time to understand. Plan Insurance can help you put in place the right precautions and explain how to react to a potential claim. Therefore, contact us today for more information on how we can help your business.

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