Where to turn to when products go bad

In business circles, the reverse of the above Bible quotation is what may apply particularly if it has to do with consumables! From time immemorial there have always been stories of defective products and consumables having effects of varying magnitudes on consumers, thus leading to legal suits, sometimes.

Similarly, reports or rather allegations of ‘a wall gecko’ finding itself in cooked food are often heard of.

In an attempt not to authenticate the veracity or otherwise of some of these stories, one thing is certain – products can go bad or suffer some defects, sometimes!  These products range from mainly consumables such as food and drinks through to electronic appliances, cosmetics, treated water, oils, lubricants, among several others.

My personal experience at a funeral some 10 years ago with a bottle of soft drink that turned out to be badly unwholesome would not go unremembered! Following the advice of other mourners of a legal suit against the manufacturer, I followed through and turned the exhibit at the manufacturer’s head office.

After moving me around from one floor to another several times at the manufacturer’s offices, they finally declined liability. Inasmuch as I may not be as litigious to proceed to court, not everyone will leave it at that.

The Complex Business Environment

Suffice it to say the business environment continues to be complex, as the relationship between manufacturers and consumers is now one of a social contract, particularly as a result of increased demand for goods and services leading to increased competition and consumers’ sophistication.

Consumers will, therefore, stop at nothing to uphold their rights under the social contract with manufacturers. It is, therefore, equally imperative for manufacturers to protect themselves against their financial liabilities to consumers.

Quality Control at Manufacturing Points

Even though manufacturers of consumable products often uphold high-level quality checks and controls in the course of manufacturing, there still exist overruns, which may cause the companies to pay out huge compensations in lieu of manufacturing defects with dire consequences, particularly for human lives.

Paying out huge compensations also has dire consequences for the financial stability of these manufacturers. This, therefore, brings to the fore the need for product liability insurance, which indemnifies manufacturers against the financial consequences of their products’ defects often resulting from legal suits.

Product Liability Insurance

Product Liability (PL) insurance is a policy and it often embodies a package of specialised insurance policies that protects the insured against claims of personal injury or property damage caused by products sold or supplied through the insured business.

It, therefore, indemnifies the insured against liability to a third party, resulting from the use of their defective products. Instructively, defective products can be injurious both to human life and property, hence victims are given protection under the Consumer Protection Act, 1987. In this regard, victims of defective products may sue for breach of contract or a tortuous act.

Types of defects considered under Product Liability Insurance

There are basically two types of PL insurance. First, PL may be based on fault. This involves non-disclosure, misrepresentation of products defect or effect. A manufacturer becomes liable if a consumer sustains injury after relying on the manufacturer’s non-disclosure or misrepresentation of the product defects or effects.

Second, PL may be based on strict liability. Strict liability, simply, applies liability without fault. Typically, it involves product failure resulting from inadequate provision of instructions. Lawyers often have a great deal of responsibility in the interpretation and application of this rule.

Manufacturers / Distributors’ responsibility

Manufacturers and wholesalers/retailers have a responsibility of consistently ensuring that their products meet the desired quality as they will be legally liable for consequential damages resulting from the use of their defective products.

Since the payouts are usually high, the need to transfer the risk to an insurer so that the insurer will be responsible for consequential damages becomes critical.

Does your business have pl insurance?

PL insurance is a necessary requirement for all types of businesses particularly in the manufacturing sector. In this sector, PL typically covers during and after manufacturing processes.

Indeed, even if defective products find their way through the chain to wholesalers and then retailers, they can as well be sued; hence, both wholesalers and retailers also require PL insurance. Sometimes wholesalers can be liable particularly with respect to the way they store their products.

Claims Payment

The validity of claims is a significant factor in PL insurance. Technically, the claims of the injured are barred beyond three years, after the victim becomes aware of the damage. This limitation is, however, based on the negotiations between the parties. Moreover, the law refers to the Provisions of the Civil Code.

However, if more than 10 years have passed since the marketing of the product, there can be no more claims. In this case, one may not need PL insurance. Nevertheless, the claim will remain valid if there is a pending dispute or pending collection procedures.

PL Insurance for imported products

As most developing countries such as Ghana continue to import several goods from overseas for local consumption, such products may have the tendency to cause PL suits; leading to huge claims. In this regard, importers, wholesalers and distributors must either ensure that their manufacturers have PL insurance, with an extended cover to them or take their own PL insurance.

The PL Insurance schedule

The schedule will, usually, define the scope of coverage, as well as both the per unit and total indemnity limits. The premiums are normally based on a defined rate of the estimated annual turnover of the business.

In most situations, however, the manufacturer will take a general public liability policy with extensions to include product liability insurance.

The way forward

Suffice it to say the benefits of PL insurance are enormous, as already discussed. In this regard, the National Insurance Commission, the Association of Ghana Industries, the Chamber of Commerce and Industry, the Ghana Insurers Association and other stakeholders must collaborate and have discussions on increasing the PL insurance portfolio in order that both industry and the economy at large will be protected.

Indeed, thinking strategically is no longer only a norm but also a way of life for most organisations, particularly those in industry and commerce.