Product liability insurance and retailers: falling foul of the law

Retailers and manufacturers may unwittingly run serious risks due to a misunderstanding of the law. Read on to find out if product liability applies to you.

As a retailer or wholesaler importing products to sell in the UK, you may think that selling a product manufactured by someone else means you are not liable if it malfunctions and someone is injured. Wrong.

Even if you only sold a product, not made it, you can be the subject of costly claims. The design of the product, claimants may argue, is the responsibility of the manufacturer. And they’re right to some degree. But only in some cases.

The need for product liability cover is actually greater – and more widespread – than ever before.

Product liability law

One big shift in recent years is the tendency for products – or product components – to be manufactured abroad. If you’re a UK wholesaler, what are the chances that the products you’re selling were made from scratch in Britain?

It’s much more likely they were made, partly or entirely, in an Asian country such as China or Taiwan. It’s vital to note that these countries, being outside the European Union, are not covered by EU legislation. Therefore, the responsibility for their safety will fall on you, the retailer.

Here’s an example:

After living in India for several years, let’s imagine someone set up a business in the UK importing Indian-made clothes to sell to smaller retailers. Without their knowledge, the Indian manufacturers changed the dye they used in their fabrics. They’ve sold thousands of garments when the complaints started rolling in: the dye was causing terrible skin allergies.

In one case, the dye had not only caused a customer to cough and sneeze but had also given her an eye infection that she claimed caused her temporary blindness. The entrepreneur ends up closing her business due to the stress, and had to sell her house to cover the legal fees.

Having taken out both public liability insurance and employers’ liability insurance when she set up the business, the entrepreneur thought she was fully covered. But she hadn’t realised she was responsible for the actual products she was selling, since they were manufactured by someone else.

Product liability cover might have saved this business.

Not-so-good news travels fast

The internet is helping SMEs grow and thrive more than ever before. However, it has its downsides. Thanks to social media and review sites, dissatisfied customers can find each other with ease, and may even bring collective lawsuits against companies – the kind that can put them out of business.

So-called ‘class action’ lawsuits have been filed for complaints as diverse as arsenic levels in wine and mould-growing baby seats. You might remember the high-profile 2012 case in which Toyota was sued for a manufacturing fault that caused cars to spontaneously accelerate. The price of the settlement was $1.2 billion.

What is product liability?

Few people would argue that the Toyota case was unfair – although in the case of retailers and wholesalers, such a lawsuit could be. However, this won’t hold water with a solicitor who can profit from the laws regarding product liability!

And such lawyers are increasingly common in the UK’s ever more litigious society. Imagine someone running a medium-sized chain of garages in the north of England. Last Christmas he decided to give away key rings as free promotional gifts. When a child choked on a faulty key ring, he found himself legally responsible. Why? Because the manufacturer of the key rings was untraceable – another factor that shifts the responsibility to the retailer.

Thanks to a law firm that tracked down personal accident claims, the business was sued for what he’d believed was an innocent act of customer service.

Product liability insurance

As a retailer or wholesaler, you’re strongly advised to include product liability cover in your insurance policy in order to protect your business from laws that could leave you vulnerable.


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