Case Study: When an Imported Product Creates a Liability Exposure

The event

A hardware business imports a batch of products from an overseas supplier and sells them through its Australian store.

The products appear suitable, the supplier has provided the required operating and other relevant information and the pricing is commercially attractive. The items are then added to the product range and begin selling to customers.

Several months later, one of the products fails while in use, causing third party property damage. A claim is then made against the business that supplied the sold goods.

The issue

The business owner’s first response is understandable: “We did not manufacture the product.”

However, when a product is imported and sold in Australia, the liability position can be more complicated. If the overseas manufacturer does not have an Australian presence, the importer or supplier may be brought into the claim as they could be deemed to be the original product manufacturer and the business that sold the product may need to respond, even where the fault originated elsewhere.

The exposure

For timber and hardware businesses, this exposure is important and could have an impact on normal business operations.

Many businesses supply products sourced from both local and overseas manufacturers. These may include tools, fittings, adhesives, fasteners, electrical items, safety equipment, building materials or other hardware products.

If one of those products fails and causes injury, property damage or financial loss, the claim may involve several parties across the supply chain. The business may also need to produce supplier records, product specifications, safety documentation and evidence of what was known at the time the product was sold. Conversely, the contractual supply agreements may also require review to determine what (if any) recourse can be undertaken against the supplier or manufacturer.

The insurance response

The insurance response will depend on the policy wording, the nature of the product, how the business was involved and what was disclosed to the insurer.

This is why it is important to advise your broker or insurer if your business imports products, rebrands products, provides advice, modifies goods, assembles items, sells online or supplies products into commercial projects.

A liability policy may include product liability cover, but the details matter. Some policies can contain exclusions, conditions or limitations for certain products, imported goods, advice, product guarantees or known defects.

Questions this raises

Do you import any products directly? Are your suppliers based overseas? Do you keep product specifications and safety documents on file? Do you provide advice or instructions about how products should be used? Does your insurance program reflect your role in the supply chain?

Imported products can create valuable commercial opportunities, but they can also increase liability exposure.

If your business imports, supplies or recommends products, your insurance program should reflect the role you play in the supply chain.

This article is general information only and does not take into account your objectives, financial situation or needs. Please speak with your broker about your specific circumstances.