A product takes on a life of its own: it leaves the workshop, the warehouse, the webshop's parcel box – and if it later causes damage, the question is no longer who sold it, but where liability comes to rest along the chain. Product liability is a separate branch of the liability-insurance family, with its own logic. This article walks through the chain and the cover.
- Several participants in the chain – manufacturer, importer, distributor – can be held liable for damage caused by a product, under the applicable laws and regulations.
- Product liability insurance is for damage the product causes to SOMEONE ELSE – not for replacing the defective product itself.
- As a webshop, an importer, or a business with its own-brand products, this question cannot be avoided.
The chain: who is liable for the product?
The legal framework for product liability comes from the applicable laws and regulations; the underlying logic is that, to protect the injured party, several participants in the chain can be held liable – primarily the manufacturer, but in defined cases the importer too, and even the distributor, for example if the manufacturer cannot be identified. Small Hungarian businesses typically meet this in three roles: as a manufacturer (the joiner's chair, the handmade cosmetic product – see the trades article), as an importer (goods brought in from outside the EU), and as a distributor/webshop – where many are surprised to learn the question applies to them too.
What counts as product damage?
Product liability applies to damage the product causes to someone else: a faulty electrical appliance starts a fire, a chair leg breaks and the customer is injured, a cosmetic product damages someone's skin. It doesn't cover the product's own defect – replacement, repair and refunds belong to the world of warranty, which is a business risk, not an insurance claim. The dividing line follows the same logic as fixing your own faulty work in services (see what's covered and what's not).
Product liability insurance
This cover handles the liability of the chain participant: it settles a well-founded claim under the policy terms, and helps with the defence against an unfounded one. Its key questions: precisely defining the product range (what it covers – to be updated whenever you launch a new product!); territorial scope – cover needs to reach wherever the product ends up, especially with exports (see the article); the question of recall costs – typically a separate module; and timing – a product can cause damage years after it was sold (see temporal scope).
A special note for webshop owners
In legal terms, a webshop is a retailer – and in practice, often more than that: with own-brand products it can take on the role of manufacturer, and with sourcing from outside the EU, the role of importer, under the applicable rules. The three roles represent three different risk levels – which is why, when requesting a quote, the first question is always mapping out the sourcing chain precisely (see the activity assessment). To classify your own chain: a free consultation.
Example: the extension lead's journey
A webshop imports electrical extension leads from outside the EU under its own brand name. Two years later, one overheats and causes a small house fire. The injured party approaches the webshop – and it's no use pointing to the distant manufacturer: as an own-brand importer, the webshop can stand at the front of the product-liability chain, under the applicable rules. The questions come in sequence: does it have product liability cover (a plain trader's policy isn't necessarily enough for this); does the cover's product range include electrical goods; and are the sourcing-chain documents in place (declarations of conformity, certificates) – these are the basis for any defence. Running a webshop is a convenient business model – but its product-liability side is real, and can be assessed precisely.
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