Buying from China and selling in the USA or Europe? Do you have product liability insurance? Do you even need it?
These are common questions we get here at Global From Asia, and today’s guide is going to go through some of the thought process and tactics you can use to cover your business. This is focused on Hong Kong limited companies, but any product business selling a high volume of goods should read this guide.
What Is Product Liability Insurance?
Why Do You Need It?
First off, what is this product liability insurance? For anyone selling a physical product, you should know what this is. Heck, maybe even service companies need it.
The idea is if you sell a product to a consumer, and they get sick, choke, die, etc – the company (or person) who sold it to them may get a legal letter.
America is very “sue trigger happy”, and people may slip on the stairs at a shop. They will sue the shop because they didn’t have a “caution wet” sign up.
Many have heard of the McDonalds’ lawsuit of the woman who spilled hot coffee on her lap at the drive thru. She sued McDonalds because it didn’t say that it was so hot and won a ton of money!
So if you have the proper insurance, the insurance companies will “fight” for you in court, and pay any lawsuits. You need to pay a monthly or yearly premium for this protection.
Why even bother? Sure you could try to go to court and fight it yourself. Or pay the consumer their fee. But who knows how expensive that can get. Plus, is this your expertise? Insurance companies are the masters at this, let them do their job.
Another reason it is worth getting is you can protect your business. By putting this insurance premium as a cost on your business plan, you can “smooth out” any unknown risks that may come up in the future due to product liability.
And the third reason, which may be a big one for business owners, is some big retailers won’t buy from you unless you have product liability insurance.
Why do they care? They want to know that if one of their retail customers gets hurt from buying your product, you will be able to pay the lawsuit off in full. If you don’t have product liability insurance and get sued, you may not have enough cash in your business to cover the costs. That will make the retail chain look bad, for selling goods that aren’t insured.
What Happens if I’m sued and I don’t have it
Time for me to add some of my fun stories. I was a new seller on eBay (back in 2004!) and one of the buyers bought a metal lemon squeezer from me. It was spring loaded to put pressure on the clasp so it would open when you release the grip.
Well, she scared the heck out of me! She sent me a photo of her bloody hand and said that the lemon squeezer she bought from me did this and she was going to do everything she could to make our lives a living hell. I wish I kept these messages, but it was blocks of paragraphs, I believe in CAPS LOCK.
So scared, my business partner Andrew and I were freaking out. I called up Bruce Williams business radio and was patched into the studio, live! Bruce lectured me that we only setup a general partnership, not an LLC or corporation, so the legal issues would pass down to the owners directly. He urged me to immediately restructure the company as an LLC or Corporation to protect the business from these issues and more.
But that didn’t help the matter at hand. I decided to be as nice as possible and reply that we’ll give her a 100% refund on the product and shipping (about 10 USD). To our amazement, she accepted! She even gave us 5 star feedback!
Guess the cut wasn’t so bad after all!
But had this been a bigger problem, or if she wanted to make our lives hell, she could have tried to sue. We didn’t have product liability insurance and we didn’t have a “corporate veil” to protect our personal assets. If the lawsuit went through and we had to pay millions of dollars (or whatever it would be), the company would have to pay out everything, and if anything else was not paid, then we as the owners would have to pay.
If we had it as a LLC or corporation, and no product liability insurance, if we got the lawsuit and lost – the company would have to pay. If the company didn’t have enough money, either it would go bankrupt or pay over time in some kind of payment plan. But the owners would be protected by the corporate veil. So long as the owners were not negligent.
Another option is to pass this liability to where we got the lemon squeezer. We bought it from a wholesaler in Minnesota. So, we could then try to sue them.
Basically, this all would get really ugly.
Product liability insurance is here to let the business pass this over to the insurance company to deal with.
Product Liability & International Borders
This is when things get complicated. Where did the sale happen, where is the company registered?
When a consumer gets hurt from a product, it is up to this consumer to do something about it. I haven’t watched TV in America in a while, but there are often commercials of lawyers who will help consumers sue companies. The lawyer does this for a fee and percentage of the legal winnings.
Lawyers will look for whoever they can sue and get money out of. They may go for the Amazon or eBay or Walmart, as those companies have money. But those companies have big legal teams, and when you signed up as a seller with them, they most likely covered their behinds with an agreement. They will push this to you.
And thus, why many of them may ask for product liability insurance.
But what if you’re a Hong Kong company, or outside of America?
There are insurance agents who can sell you US market product liability for a Hong Kong or non-USA based company. They will assess your product’s risk and your business risk and offer you a package.
The Insurance Company Will Need To Know About The Product
When applying for product liability insurance, the company will want to understand as clear as possible what your product is. Does it pass the safety tests required for the US market and other markets it is being sold in?
There are some difficult products such as the toy industry. Why? Because kids, eat stuff! Stuff they are not supposed to eat. Talking first hand here as a father, kids will take their toys and try all sorts of things on them.
A scary example is one I was involved with. A boy in Texas took his toy cell phone and was able to get the watch batteries out from the back. He then swallowed them before the parents could get it. The kid had to get rushed to the hospital and his stomach pumped to remove this battery.
So what happened? The parents were furious and went after whomever they could. I don’t know if their health insurance covered the hospital bills, but regardless, they wanted to nail the company that made this product.
As an outside consultant in China, the lawyer in USA was defending the company who sold it. It was a gas station chain, and the importer had gone bankrupt already that sold them these toys. So as they were on the hook for this, they wanted me to check out the factory in China. The company’s lawyer was doing anything to “pass the liability” down the supply chain. But I think we can all imagine how hard it would be to sue a Chinese factory, and the retail store was the one stuck dealing with this issue.
Had they gotten product liability insurance, or made sure that the distributor they bought the goods from got one, they could then go to the insurance company and they would take the legal case burden.
Such is life, we always want something when it’s too late. By picking up this insurance cost right from the get go, you can protect yourself and focus on your business. Of course that doesn’t mean you don’t care about the health and safety of your end consumer! This cell phone toy importer should have made sure that these products were 100% kid safe.
Amazon Sellers Take Note
As Amazon gets more and more strict for selling on its marketplace, FBA sellers should get more serious.
Of course it is important to protect themselves, but it is also going to be helpful when dealing with the growing requirements Amazon puts on its FBA sellers.
How Much Does Product Liability Insurance Cost?
So a bit scared reading this? I can imagine.
Many companies don’t think about this until it is asked. By being prepared, you can also sell better to retail chain stores instead of them catching you with something missing.
How much will it cost? Sure, every business owner wants to know. Unfortunately, the price isn’t standard, and depends on the product and industry you are in. We have contacts in insurance agencies here in Hong Kong that can give you a quotation, check out our full list of business insurance types.
USA Product Liability Insurance For International Sellers
Looking for protection in your Hong Kong company? Build up a solid business and solidify it from any accidents or other unexpected situations. We all know how crazy life can get, so pad this in and sleep better at night!
Also if you want to read our guide – check out how to get product liability insurance.
I have an Israeli company registered in israel, but I would like to get a product liability insurance in the USA. Do you do something like that?
Yes, we can help you get this setup.
More emails on this subject
We sure are glad that our readers from all over the world, are engaging with us. These emails below that we received, just show that sellers are really serious about getting product liability insurance coverage:
Hi I need help for product liability insurance. I’m selling on Amazon. Product coming from China. Product will be different categories like Baby, home, kitchen, cosmetic. Can you help me? Thank you. Emanuela
Hi, I am the owner of a private label brand selling on Amazon USA FBA. The brand has been around for about 3 years and it is a brand of baby products (baby teethers, baby play mats, play fence, baby cups etc.). Our product line currently consists of about 20 products and our corporation/business is registered and based in Toronto, Canada. If possible, we would consider having only some of our products to be covered by the policy. Our sales comprise of 98% from amazon.com (usa) and 2% from amazon.ca (canada). We would like to get product liability insurance. Would you be able to help us? Jerome
Hello. I’ve just read your article on Amazon Seller Insurance. Do you have access to insurers that will work with Australians selling in the USA and operate with an Australian company? Thanks!Anthony
We’re getting the same message from all three – “help us”. Yes, there is a way to help you. As you go further down this article, you will find a get-connected-with-an-insurance-agent-now button. Just click that and fill out the insurance request form that follows. Just provide us with the important details so we would know how to help you further.
Example – USA Product Liability Insurance via Hong Kong
Let’s put a real world example in here. You are buying products from your Chinese factory, putting your brand on them, and selling them in the USA.
Business is doing well, you’re selling on Amazon and a little bit of eBay. Then you get a deal with a large retailer. But they ask in the terms that you have product liability insurance. You say on the phone call you’ll get this no problem.
After hanging up on the call, you wonder what that is. In summary, it protects you and the retailer from any product malfunctions or defects to the end consumer. If a baby eats the product and, heaven forbid, the baby chokes – that product owner is in trouble. The parents will look for the retail store and the brand to sue them for all the money they can get.
This is when you’ll be happy you had product liability insurance.
But you may not have a USA company. Maybe insurance providers you talk to require you to have a Tax ID (EIN) in America to get coverage.
Well, you found the right source here.
You can get underwritten here via your Hong Kong company and pay in Hong Kong from your HK bank! We understand you’re tired of all the international bank transfers. You can make a painless bank transfer within the HK banking system. The coverage will protect you, you can show this to your retail client. He or she will put the stamp of approval on it, and you’ll get your order confirmed.
Back to counting your cash and sleeping well at night!
This is one case of many of various business insurance policies.
List of Available Insurance Plans
Here’s the full list of available kinds of insurance policies for you and your business.
Property All Risks
Fire and Allied Perils
Private transit insurance
Travel and Personal Accident
Employees’ Compensation insurance
Domestic and Commercial motor insurance
Directors & Officers insurance
Fine Art insurance
Event cancellation and contingency insurance
Film production insurance
Comprehensive business insurance packages
Business interruption & money cover
Private and group medical insurance
Private and group life insurance
Private and group income protection insurance
Private and group critical illness insurance
Ready To Talk About Business Insurance Plans? Contact Us
We’d love to hear what you have in mind. Insurance is always a complicated and somewhat – confusing – industry. We work hard to make it in simple terms, and all from your Hong Kong company.
How About Your Experience With Product Liability Insurance?
So now it’s your turn. Have you gotten product liability insurance in the past? Have it now?
Has it saved your business? Helped you land a big retail client?
Let us know in the comments below! And as always, to our mutual success in our global business!