Product liability insurance protects businesses against compensation claims and legal costs arising from products they manufacture, supply, distribute, import, or sell that cause injury, illness, or property damage to a third party.
Under UK law, businesses that place products on the market can be held strictly liable for defective products — meaning a claimant does not need to prove negligence, only that the product was defective and caused harm.
The Legal Framework
Product liability in the UK is governed by two main pieces of legislation:
Consumer Protection Act 1987
The Consumer Protection Act 1987 (CPA) implements the EU Product Liability Directive into UK law (retained after Brexit). Under the CPA:
- Strict liability applies — The injured person does not need to prove the producer was negligent
- The producer is primarily liable (the manufacturer or the business that puts its name on the product)
- Importers into the UK are treated as producers for liability purposes
- Suppliers (retailers and distributors) can become liable if they cannot identify the producer or importer
- Claims must be brought within 3 years of the injury or damage (and within 10 years of the product being supplied)
Negligence (Common Law)
In addition to the CPA, claims can be brought under common law negligence. This requires the claimant to prove:
- The business owed a duty of care
- That duty was breached
- The breach caused the injury or damage
Negligence claims have a longer limitation period and can cover a wider range of losses than CPA claims.
What Product Liability Insurance Covers
| Coverage | Description |
|---|---|
| Compensation | Damages awarded to the injured party for personal injury, illness, or property damage |
| Legal defence costs | Solicitors’ fees, expert witnesses, and court costs |
| Claimant’s legal costs | If you lose the case, you typically pay the other side’s costs |
| Product recall costs | Some policies extend to cover the costs of recalling defective products (often as a separate add-on) |
| Out-of-court settlements | The majority of product liability claims are settled before reaching court |
What It Does Not Cover
- Damage to the defective product itself — Only damage to other property or injury to persons
- Contractual disputes — Disagreements about product quality or fitness for purpose (these are commercial, not liability, claims)
- Known defects — Products the business knew were defective before supply
- Deliberate acts — Damage caused intentionally
- Product guarantee claims — Warranty and guarantee costs are a commercial expense, not an insured liability
Who Needs Product Liability Insurance?
Any business involved in the product supply chain can face a claim:
- Manufacturers — Directly responsible for the design and production of the product
- Importers — Treated as the producer under the CPA if the manufacturer is outside the UK
- Retailers and distributors — Can be liable if they cannot identify the producer or importer
- Own-brand sellers — If you put your name on a product manufactured by someone else, you are treated as the producer
- Online sellers — Including marketplace sellers on platforms like Amazon, eBay, and Etsy
- Food and drink producers — Subject to additional regulations under the Food Safety Act 1990
Product liability insurance is not a legal requirement in the UK (unlike employers’ liability insurance), but many businesses find it essential because:
- Large retailers and distributors require suppliers to hold product liability cover as a condition of doing business
- A single serious claim can be financially devastating for an uninsured business
- Many trade associations and industry bodies require it as a condition of membership
Common Claim Scenarios
- Food contamination — A restaurant or food producer supplies contaminated food causing illness to customers
- Electrical faults — A device manufacturer’s product overheats and causes a fire, damaging the customer’s property
- Children’s products — A toy with small parts causes a choking incident
- Cosmetics and personal care — A skincare product causes an allergic reaction or chemical burn
- Building materials — A structural product fails, causing property damage or injury
- Machinery — Equipment sold to another business malfunctions and injures an operator
How Much Cover Do You Need?
The appropriate level of cover depends on:
| Factor | Consideration |
|---|---|
| Product type | Higher-risk products (food, children’s items, electrical goods) need more cover |
| Volume | More products in circulation = greater exposure |
| Markets | Selling into the US requires higher limits due to the litigation culture |
| Customer requirements | Many large retailers require a minimum of £1 million to £5 million |
| Potential harm | Products that could cause serious injury or death justify higher limits |
Typical cover limits for UK small businesses range from £1 million to £5 million. Businesses exporting to the US or dealing with high-risk products may need £10 million or more.
Cost of Product Liability Insurance
Premiums are influenced by:
- Product type and risk profile — Food, electrical, and children’s products attract higher premiums
- Annual turnover — Higher revenue generally means higher premiums
- Claims history — Previous claims increase costs
- Export markets — US cover significantly increases the premium
- Cover limit — Higher limits cost more
- Quality controls — Demonstrable quality assurance and testing can reduce premiums
For a low-risk UK business with turnover under £500,000, premiums might start from £100 to £500 per year. Higher-risk businesses or those with US exposure can pay thousands.
Product liability is often included within a combined business insurance or commercial public liability insurance policy.
Product Liability and Your Accounts
- Insurance premiums are an allowable business expense for Corporation Tax or income tax
- If you receive a payout, the treatment depends on what it covers — compensation payments passed through to claimants are not taxable income, while reimbursement of your own legal costs may offset the corresponding expense
- Product recall costs that are not insured should be expensed in the period incurred
- Maintain accurate accounting records of all product-related insurance costs and claims
Reducing Product Liability Risk
While insurance provides financial protection, businesses should also manage the underlying risk:
- Quality control — Implement and document rigorous testing and inspection processes
- Traceability — Maintain records that allow defective batches to be identified and recalled
- Clear instructions and warnings — Adequate labelling, user guides, and safety warnings
- Regulatory compliance — Ensure products meet relevant British Standards, UKCA marking requirements, and sector-specific regulations
- Supplier agreements — Include indemnity clauses in contracts with component suppliers and manufacturers
- Incident reporting — Report serious product safety issues to the Office for Product Safety and Standards (OPSS)
Related Insurance
- Public liability insurance — Covers third-party injury and property damage not related to products
- Professional indemnity insurance — Covers claims arising from professional advice rather than physical products
- Employers’ liability insurance — Covers employee injuries (a separate legal requirement)