PRODUCT LIABILITY INSURANCE:
DEFINITION, COVERAGE, BENEFITS, COST, CLAIMS

A Product Liability Insurance Policy is a type of Insurance Policy which covers the Insured Party for Defence Costs and Compensatory Damages that the Insured becomes legally liable to pay because of Bodily Injury or Property Damage caused by using an Insured Company’s defective products.

A Product Liability Insurance Policy is issued on a Claims Made Basis, that is, the Claim must occur and intimated to the Insurance Company within the Policy Period. A Product Liability Insurance Policy is a must for any company which manufactures, sells or distributes products to protect itself from Claims that its products caused harm or damage.

What does a Product Liability Insurance Policy Cover?

A Product Liability Insurance Policy covers Defence costs and Compensatory Damages that the Insured becomes legally liable to pay because of Bodily Injury or Property Damage caused by using an Insured Company’s Defective products. The Defects covered by a Product Liability Insurance Policy include:

Manufacturing Defects: Manufacturing Defects are a common source of Product Liability Insurance Claims. In such cases, there is usually a defect in manufacturing a particular batch of products which results in Product Liability Insurance Claims.
Design Defects: Product Liability Insurance Claims which arise out of Design Defects allege that the Product’s inherent design was incorrect from the outset. Design Defect Claims are different from Manufacturing Defect Claims in the sense that Manufacturing Defect Claims allege that there was an error in manufacturing a particular batch of products. As a result, the particular batch of product is defective. However, Product Liability Insurance Claims alleging Design Defects arise because the entire product (and not a particular batch of products) is defective as there was an error at the design stage itself.
Inadequate Instructions/Warning or Labeling Defects: Another type of Product Liability Insurance Claims usually arises out of a warning or labeling defect. In such cases, the consumer is supposed to be warned about the inherent danger of consuming the product through the use of labels with instructions. However, the failure to warn consumers might give rise to product liability insurance claims.

Usually, manufacturers get sued over Manufacturing Defects or Design Defects while retailers and distributors get sued over Warning or Labeling Defects.

What are the Exclusions in Product Liability Insurance Policy?

A Product Liability Insurance Policy does not cover the following:

A Product Liability Insurance Policy does not cover Costs Incurred in the Repairing or Replacement of Defective Product
Costs Incurred in Recall of Faulty Product are not covered under a Product Liability Insurance Policy does not cover
Fines, Penalties or Exemplary Damages are excluded
Claims arising out of Contractual Liability are not covered
Claims arising out of Deliberate or Willful Non-Compliance of any Statutory Provisions are excluded under a Product Liability Insurance Policy

What are the Add-On Covers under a Product Liability Insurance Policy?

The Insured can opt for the following Add-On Covers under a Product Liability Insurance Policy:

Technical Collaborators Extension: Technical Collaborators Extension in a Product Liability Insurance Policy provides for inclusion of Collaborator in the Policy with respect to the Technical Collaboration between the Insured Party and the Collaborator.
Third Party Manufacturers Extension: Third Party Manufacturers Extension allows for cover of products which are not manufactured by the Insured but by sub-contractors by paying an additional premium.
Vendors Liability Extension: Vendors Liability Extension in a Product Liability Policy extends the coverage of the Policy to include designated vendors as an Insured but only with respect to distribution or sale of the Insured Product in the regular course of the Vendor’s Business

Which Companies offer Product Liability Insurance?

Major international insurers that commonly offer product liability insurance (many with direct operations or brokered access worldwide) include:

Chubb
AIG (American International Group)
Allianz / Allianz Global Corporate & Specialty (AGCS)
AXA / AXA XL
Zurich Insurance Group
Tokio Marine
Liberty Mutual / Liberty Mutual Insurance Europe
QBE Insurance
CNA Insurance
Berkshire Hathaway Specialty Insurance (BHSI)
W. R. Berkley / Berkley Insurance Group

Major carriers with authorized operations or presence in Hong Kong include Chubb, AIG, AXA, Sompo, Tokio Marine, Allianz and Zurich. These insurers typically offer flexible wordings tailored to manufacturers, importers and retailers, worldwide jurisdiction options, and experience handling cross‑border claims across markets such as the US, EU and Asia‑Pacific.

Coverage details, limits and exclusions vary by insurer and by sector (for example, electronics, toys, food or pharmaceuticals carry very different risk profiles), so the market listing above is not exhaustive. Some insurers also provide related extensions—such as professional indemnity for product‑design advisors or specialist recall management services—either as endorsements or alongside product liability placements.

How much does a Product Liability Insurance Policy Cost?

A Product Liability Insurance Policy premiums vary widely by industry and exposure. As a rough illustration, a product liability policy with a per‑occurrence and aggregate limit around HKD 3 million might cost in the low tens of thousands of HKD per year, while higher limits (e.g. HKD 10 million) can push premiums into the mid‑to‑high tens of thousands or more. Exact pricing depends on many factors below — obtain firm quotes from insurers or brokers for accurate figures.
The cost of product liability insurance in Hong Kong depends on:

Nature of business and industry: Premiums are higher for higher‑risk products and sectors (e.g. pharmaceuticals, children’s toys, food/beverage, automotive components) and lower for low‑risk goods.
Role in the supply chain: Manufacturers typically face higher premiums than distributors or retailers because of greater exposure and obligation for product defects.
Limit of liability and deductible: Higher per‑occurrence and aggregate limits raise premiums; selecting larger deductibles/self‑insured retentions can reduce premium costs.
Territorial and jurisdictional scope: Worldwide jurisdiction (including the US/EU) attracts higher premiums and broader legal exposure than a policy confined to Hong Kong/Asia.
Coverage extensions required: Add‑ons such as product recall, contamination, run‑off (extended reporting), or defence costs outside the limit increase the premium.
Prior claims and loss history: A record of past claims or frequent small losses will increase your premium; a clean claims history helps reduce it.
Product safety and risk controls: Strong quality control, testing certificates, traceability, recall plans and compliance with relevant standards lower underwriting risk and can lead to better terms.
Annual turnover and exposure base: Insurers often price product liability based on sales turnover (especially for exporters), production volumes or declared exposure units.
Regulatory and contractual requirements: Exporters often need specific limits and wording requested by international buyers or distributors, which may affect cost.

Product Liability Insurance and Consumer Protection (Hong Kong Consumer Goods Safety Ordinance (Cap. 456) and Sale of Goods Ordinance (Cap. 26))

In Hong Kong manufacturers, importers, distributors and sellers can be held liable for defective products and for failing to provide adequate warnings or instructions — typically through common‑law tort (negligence), contract claims and certain statutory regimes — and regulators can require recalls or take enforcement action for unsafe goods.

Product liability insurance protects manufacturers, importers, distributors, wholesalers and retailers against claims arising from defective or unsafe products that cause bodily injury, property damage or financial loss. In Hong Kong this cover is widely used by export‑oriented and retail businesses: policies commonly cover legal defence costs, settlements, and can be extended to include product recall, contamination, and run‑off/extended reporting.

Consumer protection in Hong Kong is enforced through legislation and public bodies that give consumers routes to complain, seek remedies or trigger enforcement. Key frameworks include the Trade Descriptions Ordinance (addressing false or misleading product descriptions), the Consumer Goods Safety Ordinance (covering unsafe consumer products), and common‑law remedies such as negligence and breach of contract (Sale of Goods principles).

What is the need for a Product Liability Insurance Policy?

A business owner is involved in manufacturing, selling or supplying various products to their customers. This may be as small as a component for a vehicle or a shop selling toys for kids or a restaurant selling food. Though as a business owner you take utmost care of your customers, sometimes accidents happen which may cause injuries to customers and thus make you liable for your products.

A consumer of the company may sue the Insured for compensation if he/she suffers a bodily injury or illness because of consuming the company’s products. Alternatively, if using the company’s products causes Property Damage, even then the consumer might sue the Company.

Such cases may be expensive to defend and an adverse judgment may result in causing substantial financial damage to the business apart from the loss of reputation. A Product Liability Insurance Policy is immensely helpful in such a case as it covers the legal expenses and compensatory damages awarded by the court in such cases.

Who should purchase a Product Liability Insurance Policy?

Manufacturers: including contract manufacturers and OEMs that design, build or assemble products.
Importers and exporters: parties bringing products into or out of jurisdictions where legal exposure may arise.
Distributors and wholesalers: intermediaries that place products into the market and can be named in claims.
Retailers and online sellers: bricks‑and‑mortar stores and e‑commerce platforms selling physical goods.
Brand owners and private‑labelers: companies selling goods under their own brand even if production is outsourced.
Product designers, packagers and refurbishers: any party whose actions could contribute to a defect or inadequate instructions/warnings.
Businesses in high‑risk sectors: food & beverage, toys, pharmaceuticals, medical devices, electronics, automotive components, cosmetics, chemicals.
Export‑oriented firms or those selling into litigious jurisdictions (e.g., US/EU): where jury awards and legal costs can be large.
Companies required by contract: suppliers asked by buyers, retailers or government tenders to carry specified limits or wording.
Firms with limited internal risk tolerance or those seeking protection for defence costs, recalls and reputational loss.

What is the difference between "occurrence" and "claims-made" policies in product liability insurance？

"Occurrence" policies cover incidents during the policy period, regardless of when the claim is filed (e.g., a defect discovered years later). "Claims-made" policies cover claims only if filed during the active policy period or an extended reporting period. Occurrence policies are more common in international trade, especially for exporters, as they provide long-term coverage for products sold globally.

Product Liability Insurance has two types：

Occurrence policy: a claim is covered if the product defect (the “occurrence”) happened while the policy was in force, even if the claim is filed later. This is attractive for products with latent defects because the insured does not need continuous cover after the product leaves their control.
- Pros: better long‑tail protection; simpler for exporters worried about future claims.
- Cons: generally higher premiums and potentially more exposure for insurers (so stricter underwriting).
Claims‑made policy: a claim is covered only if the claim is made (and usually reported) while the policy is active or within an ERP/tail period. These policies use a retroactive date to limit coverage to acts after that date.
- Pros: typically lower initial premiums and clearer underwriting boundaries.
- Cons: requires careful management of retroactive dates and purchase of run‑off/extended reporting periods when a policy is cancelled or a business changes insurers; risk of coverage gaps if not handled correctly.

How does product liability insurance handle claims involving products exported from Hong Kong to markets like the US or EU?

Policies with worldwide jurisdiction cover claims in export markets like the US or EU, addressing bodily injury, property damage, or legal costs under foreign laws.

Insurers tailor policies for compliance with regulations (e.g., EU’s Product Liability Directive).

Claims processes involve local adjusters in the claim’s jurisdiction, with defense costs covered. Hong Kong exporters must ensure policies include target markets to avoid coverage gaps.

What are the average coverage limits for product liability insurance for SMEs in Hong Kong?

SMEs in Hong Kong typically secure coverage limits of HKD 5M–20M (~$640,000–$2.56M) per occurrence/aggregate, sufficient for low-to-medium-risk sectors like retail or electronics.

Higher-risk SMEs (e.g., food exporters) may opt for HKD 50M+ (~$6.4M+). Limits depend on revenue, export markets, and buyer requirements.

Some insurers offer flexible limits, with higher ones for US/EU exposures.

Can product liability insurance include coverage for product recalls, and what additional costs might this entail?

Yes, product recall coverage is available as an add-on, covering costs like retrieval, replacement, or customer notifications.

In Hong Kong, this extension can increase premiums by 20–50%, adding HKD 10,000–50,000 (~$1,280–$6,400) for SMEs, depending on product type.

High-risk sectors (e.g., food) face higher costs. Providers might include recall coverage for exporters, subject to underwriting.

How does a company’s claims history impact the cost and availability of product liability insurance?

A poor claims history (e.g., frequent or severe claims) can increase premiums by 15–20% or lead to coverage restrictions.

Insurers may impose higher deductibles or exclude certain risks.

Clean records qualify for discounts (5–15%).

Internationally, US claims history weighs heavily due to litigation costs. Allianz and Chubb review multi-year claims data for accurate pricing.

What are the benefits of bundling product liability insurance with general liability or business owner’s policies for cost savings?

Bundling with general liability or business owner’s policies (BOP) can save 10–20% on premiums by consolidating coverage. It simplifies administration and ensures seamless protection for overlapping risks (e.g., premises and product liabilities).

In Hong Kong, insurers offer bundled packages for SMEs, reducing costs while maintaining comprehensive coverage.

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