Typically, a business either sells products or services to a set of targeted customers or clients. Either way, companies have some sort of duties and roles they must follow to provide the best to their consumers.
Every business is full of professionals that provide the best duty when providing the service or product. For example, a service business can involve professionals such as financial advisers, fitness trainers, engineers, doctors and many more. A product business can be any business providing a physical product, such as food, clothes, technology, medicines, etc.
No matter what your business does, liability risks can negatively affect your company. You will always be liable if your service or product accidently hurts customers or causes customer financial loss or property damage. Liability risks could result in lawsuits, financial and reputation loss.
How can businesses protect themselves from liability risks? The only answer to this question is liability insurance. Although product and service businesses may need different insurances. Hence this article will explain the difference between product liability and professional indemnity insurance and help you understand which insurance fits your liability risks.
What is Product Liability Insurance?
Each product has a unique purpose in the market; some purposes are to feed, communicate or entertain. No product intends to harm its consumers; even weapons are only designed to hurt the other party, never the holder. Unfortunately, there are cases where products have injured consumers or caused property damage due to defects.
In any of these cases, the product business is liable and will face the consequences. Product Liability insurance will cover legal costs and damages for the company due to the product defect claims. The insurance will cover legal, compensation and settlement costs. It will help the business recover from such allegations and focus on improving its products.
Product Liability Covers:
Product defects can occur at any point in production, from the design to the manufacture. The insurance will help cover most types of defects that cause injury or property damage, such as:
- Design Defects: When it is clear that the reason the product was harmful was due to design negligence. The design did not consider functions, sharp edges, sizes, and user safety.
- Manufacturing Defects: The injury or property damage is due to the manufacturing company and the materials or chemicals used. Problems that occurred while the product was being created or assembled.
- Failure to Warn Defects: When the brand did not label the products enough to advise and warn the consumers about the use. Lack of warning labels or allergy labels.
Product Liability Claim Examples:
An example of a design defect is when a pressure cooker burned the user, as the lid did not open when it should have. As a result, the consumer had to force it open, which resulted in 2nd-degree burns, mainly on her abdomen. She then filed a lawsuit against the business, alleging the design defect was the cause of her injuries and gained a settlement of USD 600,000.
An example of a manufacturing defect is when a Korean restaurant accidently sold products that contained salmonella bacteria. The manufacturing defect caused around 300 people to get seriously ill. As a result, 130 out of the sick filed a lawsuit against the restaurant and its franchises.
A frequent example of failure to warn is when toy products do not print a choking hazard label on their products. There have been many cases where children have choked on small parts of toys. These incidents result in furious parents suing the business for lack of warning and age labelling.
In all of these examples, the product company is liable, but the incident was not intentional, which is why product liability insurance will cover them.
Who Needs Product Liability Insurance?
The insurance should be bought by any company or professional in the product industry. Even if there is the slightest chance you may be liable for a product defect- you will need the insurance.
Some of the top businesses or professionals that need product liability insurance include:
- Designers
- Manufacturers
- Distributors (including retailers and wholesalers)
- Suppliers
- Traders (importers/exporters)
What is Professional Indemnity (PI) Insurance?
The service industry is full of professionals that are experts in their fields. They provide advice or service to consumers in exchange for a payment. However, as a service is not tangible, there are more expectations, requirements and duties professionals must follow fairly.
If a customer or client believes the service caused them harm due to professional negligence, they can sue the professional or business. Professional indemnity insurance provides coverage for professionals and companies to protect against negligence claims from clients or customers. The insurance will provide the company with legal, compensation and settlement reimbursements to face the claim.
Professional Indemnity Covers:
Professional indemnity covers claims that include damages caused by the professional’s actions or things that the professional should have done. Some of the claims involve the following:
- Negligence: A professional or business has failed to fulfil the proper duty to clients. Negligence can include accidental mistakes that have harmed the client financially or physically.
- Misrepresentation: When a professional or business doesn’t provide the level of services they promised. A client or customer expects to get the level they paid for and benefit from the transaction; if not, they feel cheated.
- Inaccurate Advice: The information was not provided clearly, harming the client. Inaccurate advice could be a part of negligence when the professional doesn’t give the expected expert service causing the customer or client loss or harm.
- Intellectual Property Claims: A business uses or copies another business’s work or idea. Other companies and professionals can sue you for stealing, even if it was accidental or coincidental.
Professional Indemnity Claim Examples:
An example of professional negligence is if an architect designs a building according to the client’s requirements. However, when the construction began, they noticed the structure was unstable and had to be fixed and redesigned. As a result, the clients could sue the architect for financial loss and compensation.
An example of misrepresentation is when a marketing agency claims it can generate double leads in six months. After eight months, they have developed only 10 % of what they promised. The client has suffered financial loss, therefore, can sue the marketing agency for false advertising and misrepresentation.
An example of inaccurate advice is when a doctor does not perform enough tests and then diagnoses asthma for bronchitis. Such diagnoses can cause serious health problems and future medical injuries. The patients can sue the doctor for thousand and more for medical compensation.
An example of intellectual property claim is when Adidas sued Payless Shoesource for using something similar to their stripe logo. As a result, Payless had to pay Adidas $15 million in compensation. They did not intend to copy the logo and argued it was different, but they still lost the case.
Who Needs Professional Indemnity?
Any business that provides advice, consultancy or specialist services should take out a professional indemnity (PI) cover. The main professionals that need the insurance are the following:
- Medical Professionals
- Lawyers and Solicitors
- Insurance Agents and Brokers
- Educational Professionals
- Financial Services Professionals (Financial Advisors & Accountants)
- Construction Professionals (Architects, Engineers, Surveyors)
- Coach Professionals (personal trainers, life coaches)
These are just a few professionals that may need PI insurance to cover their liability from industry risks.
Difference Between Product Liability and Professional Indemnity.
The following two statements are the brief difference between product liability and professional indemnity insurance.
- Product liability insurance will cover a business only when the claim is due to a physical product defect—the best liability cover for businesses in any product industry.
- Professional Indemnity insurance only covers professionals and businesses when the claim is due to a service or advice—the best liability cover for professionals in any service and advice industry.
Benefits Of Product Liability and Professional Indemnity Insurance
Product liability and professional indemnity insurance are crucial to protect business and professional liability against liability claims they may not expect. Claims can arise from anywhere, even if you or your business are specialists and provide the best product or service.
Both insurances provide their respective policyholder with legal, financial and reputation protection. The insurance will pay most of the costs related to the listed claims and help the business fight. Hence the business will not need to worry about financial loss and can use the legal stand to prove the incident was an accident or they were right.
Product liability and professional indemnity insurance help businesses feel ready for the worst and focus on the next step rather than keep worrying.
To Learn More about product liability and professional indemnity insurance and cover your liability risks in Hong Kong and Asia, contact Red Asia Insurance.
