Manufacturers and sellers of goods in the UK have a legal responsibility to compensate buyers, users and even bystanders for damage or injuries they have suffered because of faulty goods, dangerous products or unsafe products that they have purchased.
Do you know your legal responsibilities and how to protect yourself and your business?
Who is liable for damage caused by a defective product?
The Consumer Protection Act 1987 enshrines in statute strict liability concerning the selling or manufacturing of faulty or defective products. This legislation applies when there is a defect in a product you produced, and you would automatically be liable for any harm caused by that defect, whether or not you were at fault.
Manufacturers, suppliers and retailers can also be at risk of claims under common law alleging negligence and/or breach of contract.
Here are some key points that you need to know about defective products and how to protect you and your business from liability.
What is a defective product?
A product is defective when it doesn't work as it's intended to and/or risks damage to a person's property or has the potential to cause serious personal injury or death to the user.
Here are three key types of product defects:
- Design defects - design defects are inherent, as they exist before the product is manufactured. While the item might serve its purpose, it may be unreasonably dangerous to use due to a design flaw.
- Manufacturing defects - manufacturing defects occur during the construction or production of the item.
- Defects in marketing – examples of defects in marketing can be improper instructions and/or failure to warn consumers of inherent dangers in the use of the product.
Is it illegal to sell a defective product?
Yes. In the UK, product liability laws are in place to protect consumers and make sure goods are as safe as can be.
How do companies deal with defective products?
It's important to understand how to handle defective products.
A lot of the time, manufacturers will recognise when a product is defective because they are made aware of the problem. They can then mass recall the item and correct the issue. The risks of product recalls and/or contamination are severe exposures. They risk damage to a company's brand reputation, damage to a company’s balance sheet and the financial costs related to product recalls.
Product liability insurance can protect you against the cost of a defective product compensation claim for your legal liability as a manufacturer, wholesaler or retailer for injury or damage caused by a defective product.
If there is a failure of a product to perform its intended function, this is known as inefficacy and this cover may be available as an extension to a products liability insurance.
Product recall insurance (often available as a product guarantee & recall insurance) can protect your business against some the major impacts of a recall event.
Each policy will contain warranties, conditions and exclusions. It’s important to get the right advice regarding the type of policy that you need.
How to reduce defects in manufacturing
There are proactive steps you can take to reduce defective products, or even prevent them before they occur, and instil a culture of continuous improvement in your workforce:
- Use a proactive approach to analyse processes and identify errors that lead to defects as soon as possible. The quicker a defect is detected, the faster the issue can be addressed.
- Implement strict quality control procedures during every step of the process.
- Utilise sophisticated testing and data-driven analysis to anticipate where issues may arise.
- Integrate the processes of every step of production utilising technology and automation.
- Consider hiring expert consultants to detail a moment-by-moment analysis of the manufacturing process and use their advice to target areas for improvement.
- Train, retrain and target train employees to garner better results due to increased knowledge of processes.
- Ensure employees know how to identify potential issues that could create defects and lead to waste.
- Track and monitor employee performance as it relates to errors in production.
- Motivate employees and team members to constantly strive for improvement.
Can a retailer be held liable for defective products?
Yes, this is possible and particularly so for consumer products. The party or parties held liable for a specific defective product will depend on the details of each individual case. All parties may be strictly liable if the Consumer Protection Act 1987 applies to the supply of the product.
For example, if a product is faulty, then the liability for any harm caused by the product lies ultimately with the manufacturer but could be commenced against any distributor, supplier or retailer. These parties may be able to accept the claim and seek to pass liability on to the next responsible party in the supply chain. However, if the manufacturer can't be traced, if they have gone out of business, or if they are outside Europe with poor traceability, then a claim could stay against the distributor, supplier or retailer instead.
It is important to figure out your supply chain to see who might be responsible and liable to pay faulty product compensation for injury or damage caused by faulty products. Traceability of manufacturer is a key issue here which should be considered when supplying a product.
Is there a time limit on making a claim for a defective product?
Claims can be made under a variety of headings: strict liability under the Consumer Protection Act 1987, and/or negligence or breach of contract being major examples. Each of these may have different time restrictions depending on the circumstances of the claim.
For example, the Consumer Protection Act provides for a 10-year limit. This in turn can be complicated: there has been some discussion as to whether in fact emerging technologies need cover beyond 10 years to cover software updates.
The landscape for Product Liability in the UK continues to evolve so it’s important to receive up-to-date advice on your risks and how you can protect against those risks.
If you’re not sure whether you need product liability insurance, or have questions about defective products, contact a Marsh Commercial advisor or visit our product liability insurance and product recall insurance sections.
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