I received this question today:
I have a client that has Business Package policy. The client imports plastic iPhone cases in from Taiwan.
The client has advised me that he’s putting his business on hold (not winding down), due to family health reasons and won’t be renewing the policy.
My concern is the product liability area, as the Insuring clause reads that personal injury or property damage is only covered during the period of Insurance. Therefore, my question is, should the client renew the policy for the next 6 years to ensure that his business is protected, just in case a product claim does give rise?
Wayne [Surname and email provided]
As you probably are aware, under Australian consumer legislation, the importer is deemed to be the manufacturer.
The issue for the client is that the products liability policy provides protection against personal injury or property damage which occurs during the period of insurance.
If one of their products were to cause an injury after the policy is allowed to lapse then they would no longer have the insurance protection.
Thinking about the risks for this particular client, my first thought was that what could go wrong with a plastic mobile phone case. My biggest concern was that if it is a plastic or fabric from overseas, it may have an unknown chemical in the formulation that may cause a problem if say a baby sucked /teethed on the case. I am mindful of the issues with contaminates in milk powder that have happened a few time lately. Even if the Insured’s product were found to be in the clear, the cost of defending such an action would be high.
The other issue is that, in my experience, mobile phone cases are not branded with the manufacturer or distributors label and your Insured may get dragged into someone else’s problem. Again, the defence costs could be high.
While the probability of risk may be considered low, the severity of a claim against the client could be quite high.
I do not believe that it is necessary to purchase a full business pack, which typically requires 3 product classes (this can be different for individual insurers).
What I would suggest is that you speak to a corporate underwriter as frequently, run off cover for public and product liability is more of a corporate area risk, rather than a SME one in many instances.
Second last thing, I would mention is that the Statute of Limitations / Limitation of Actions, does not run from the date the product is sold, but from the date the damage or injury occurs. Therefore, a client needs to consider run off cover till the last product is no longer going to cause personal injury or damage.
Finally, well done for being on the ball and identifying the risk that arises when a liability program is allowed to lapse.
I hope this thinking out loud process helps.
If any readers would like to add their thoughts to this discussion please feel free to post a comment.