Product Liability Insurance

Many of us (myself included) must have taken it for granted that the things we consume and use everyday such as microwave ovens, cars, toothpastes or even cans of soft drinks or beer are perfectly safe to use. But if you ask the people that produce these products, the story may be slightly different. Although, these people would never admit, well at least not publicly anyway, that their products are not always 100% safe or “fool proof” that's why most of the big manufacturers have taken precautions to protect themselves in case something goes wrong. The most obvious precaution of all lies in the users' manual. Have you ever noticed how everything we buy these days come with an instruction manual? Understandably, complicated products such as mobile phones, hi-fi equipments or cars come with users' manuals, usually, 100 pages long but increasingly even simple products such as clothing items or children toys now come with “instructions” on how to use and clean. Some products even go so far as to say the obvious such as warning labels on coffee cups that the content inside “is hot”. At first, I didn't really understand why people need to be told that when they order a hot coffee, it is actually hot. But after having talked to Khun Wasit Lamsum of Phatra Insurance pcl. about product liability insurance, I begin to get the picture why some manufacturers really do go out of their way to warn the consumers about their products. Welcome to the mad world of consumers' rights and protection. In this issue of Money & Wealth, we shall deal with a really interesting but bizarre subject of product liability insurance and what you need to know both as a consumer and manufacturer.

According to Khun Wasit, the story about warning labels on coffee cups, is actually a true story about how McDonald's was sued by an old lady who suffered a burn to her hand when she accidentally spilt hot coffee on herself. And she actually won damages from McDonald's for its failure to tell her the obvious that the coffee inside the cup was actually hot! The concept of consumers' protection and rights is a very big deal in the US and Canada , where their citizens enjoy tremendous protection under the law. Whether this is a good thing or not but in Thailand , a new product liability law is scheduled to come into affect next year to give Thai consumers greater protection.

Under the current law, the burden of proof is on the consumers for any damages that happen. Although, there are increasing number of litigation cases in the court through Consumer Rights Protection Board but these cases are often not reported because many of the consumers are either ignorant of their rights or lack the financial means to sue large manufacturers. But this will soon change when the new law is passed because the burden of proof will be on the part of the manufacturers. In lay man's language, the manufacturers will have to defend in the court of law that their products are safe to consume instead of the other way round. This will make it easier for consumers to bring about legal action. In a way this is a welcome move considering that several business owners have been getting away with murder (in some cases, literally) for too long. The most recent cases being a female student that fell to her death because of a faulty door on a bus and another girl who is still a coma due to injury inflicted by fallen objects from a defective building. Although, these two examples may not strictly be classified as product liability but the message is clear that Thai consumers are not adequately protected by the law. The sad truth is that, quite often the amount of compensation being awarded, usually on an out of court basis, depends the social status of the victims.

This is where product liability insurance comes in. To many exporters, the concept is not new because it is virtually impossible to export anything to the US , Canada and the EU without adequate product liability insurance. It is more or less mandatory for exporters to these countries. In fact, the consumers protection law in these countries are so out of touch with reality that one manufacturer of microchips (to be put inside exercise machines) need to get a product liability insurance in order to export to the US . Hopefully, Thai society will not be as litigious as in the US , otherwise consumers are going to have to pay more for everything as manufacturers will surely pass on the added cost of product liability insurance to the end consumers.

In any case, it is inevitable that the new consumers protection law will change the way we do business, therefore, it is worthwhile for those of you who are manufacturers, both exporters and domestic, to understand the new rules so that you can plan accordingly on how to protect yourself from possible law suits. In fact, when one really thinks about it, there are so many possibilities that things can go wrong throughout the production chain. By starting from raw materials > production > quality control > packaging > labeling > storage to transportation. Quite often several of these functions are above and beyond the control of the manufacturers themselves, but when things go wrong, it is the manufacturers who get sued first. Quite often in these cases, it usually boils down to two causes: intent or negligence. Intent or willful wrongdoing is the easy part because the manufacturers are at fault completely. But for negligence, it is substantially more difficult to manage. It could be due to faulty design or poor quality control, storage and packaging or misleading marketing campaigns or a combination of all three.

By definition, product liability is the responsibility the manufacturer has with its consumers in the event of death, bodily injury or property damages occurring due to faulty or defective products. The word “faulty” is still highly contentious in the court of law and can encompass several related parties from suppliers to manufacturers to distributors. Once again the burden of proof, for now, is the victims' responsibility but certain manufacturers or proprietors prefer to settle the matters quickly even though it is not their fault to avoid bad publicity which can do more damage to the brand name of the manufacturer than the actual cost to compensate the plaintiff. A case in point is an incident that occurred at the Oishi Restaurant, where a client was severely burnt due to a mishandling of liquid alcohol to heat the food. Personally, I think the victim was at fault here because instead of asking the waiter to light the fire, he went up to the kitchen and try to do it himself. In any case, the restaurant owner didn't wait to be sued, he came out and said that the restaurant was going to fully compensate the plaintiff. In a way this is a clever move to “put out the fire” so to speak, and avoid bad publicity, even though, it may not be the restaurant's fault.

A better way to manage this kind of incident is to take out a product liability insurance, where it provides the coverage to assume the risks from producers or distributors for any damages that happen to consumers who consumers. The insurance will indemnify for bodily injury (including death or disease), property damages and also litigation expenses in such cases.

Who's eligible? Just about any manufacturers both domestic and exporters. But there are exceptions. Like all insurance products, the devil is in the details and sometimes the exception list can be as long as a kite's tail. Those of you in the business of pharmaceutical (particularly anything to do with treatment of aids/HIV), cosmetics, chemical, tobacco, automotive (including parts), aircraft, satellite, armament shall find it extremely difficult to get any insurance coverage because these products are deemed to be “too risky” and therefore uninsurable. In addition, there are other “standard” exception clauses such as wars and riots, labour disputes, product recalsl and guarantees, infringement of copy rights, pollution (such as Asbestos), professional liability and so on. Therefore, the only advice I can give here is to read the fine prints carefully and better still get your lawyer to carefully examine the agreement before signing any documents.

Required Documents In spite of the long list of exception and out clauses, product liability insurance is here to stay and will become more crucial as a risk management tool when the new law is passed sometime next year. In the meantime, those of you that would like to find out more about product liability insurance, here is a list of documents that you must have before hand: annual reports, types of business and a full list of your suppliers, wholesale and retail distributors, countries of export (if any), quality control process, warehousing and storage facilities, past record of claims, any special “hold harmless” agreements and most important of all the jurisdiction of you entity. As you can appreciate that product liability insurance is very complex and great care must be taken when negotiating the terms and conditions with the insurers. Moreover, depending on the types of business you are in, they are not cheap. But the alternative of not having a proper protection can cost you much more in the long run.