This case study will explain a product injury case and how product liability insurance has helped our client. Product liability insurance covers claims is linked to product defects. A company will be liable for any defects if they design, manufactures or sell a product. In addition, if the product causes property damage, harm or illness to a third party: the third party will likely seek compensation through the court. Therefore, Red Asia insurance provides product liability insurance to a range of companies to cover any possible risk that follows their products.
Background of Client
The client is a brand that has purchased product liability insurance from Red Asia Insurance for their E-cigarettes product. E-cigarettes have become a popular product worldwide. Based on data from the 2020 National Youth Tobacco Survey (NYTS), From February 2020 to March 2021, total e-cigarette sales increased by nearly 50% (from 14.8 million units to 22 million units).
However, it is a product that comes with its risks due to the technology and toxins used. All E-cigarettes include batteries, heating coil and more. When products consist of batteries and heating components, there is always a risk of exploding despite intensively safety and regulating testing.
E-cigarettes is a product that many users do not understand how it should be stored or charged. A pack of cigarettes says this can kill you; while e-cigarettes warn that nicotine is addictive, they do not offer enough information on battery risk. As a result, most accidents occur with E-cigarettes when the battery overheats, causing burns or explosions.
In this situation, our client was facing a claim due to an E-cigarette exploding in a customer’s pocket. The battery explosion caused the customer to be seriously burned and suffered permanent disability- (2nd and 3rd-degree burns covered 15% of his total body surface area). Hence, this accident allowed the customer the right to sue the E-cigarette brand for a product defect. The company is liable for any harm caused to the customer or any possible future disabilities it may have caused.
Product defect claims can cause the company a large amount of financial loss as they will have to pay for defence against the claim, medical care costs and a large compensation to the customer. In addition, such incidents can also cause reputation damage to the brand and could have been hard to recover from without product liability insurance.
How Product Liability Insurance was a Solution?
Fortunately, regulations ensured that the brand had purchased product liability insurance, which helped them cover all the costs related to the claim. The cover included medical expenses, defence costs and also compensation to the customer. In addition, product liability insurance will also help the company recover from reputation damage. In addition, the insurance paid for the brand’s new safety announcement for the use of the product.
So the cost paid by the company to the customer- which was covered by product liability insurance:
- Medical costs: HKD 500,500 ( 12 days in hospital-skin grafts)
- Compensation costs: HKD 9,000,000
- Re-advertising costs: HKD100,000
Total amount :HKD 9,600,500
In conclusion, product defects and claims can occur at a time for any product in a range of industries. The injured third party could be anyone who comes into contact with your product, including the buyer, users, or even bystanders.
Although product liability coverage will not cover the cost of having to recall your product. The insurance that can cover recalls costs and arrangements is called Product Recall insurance and is bought alongside product liability insurance.