The Consumer Protection Act - 8 months later
Part 1 – Product Liability
By Simon Colman
Camargue Underwriting Managers
Eight months have passed since the Consumer Protection Act was implemented on 1 April 2011. The Act ushered in many new responsibilities for South African business, not least of which being the introduction of no-fault liability in respect of products. The knee jerk reaction from the insurance industry was a comforting, “at least most clients already have that type of cover in place”. A study was conducted by Camargue Underwriting Managers at the end of 2010 which produced startlingly, contrary results. Of the 6000 businesses in the study, less than 18% already had product liability insurance. When brokers were canvassed as to why this could be, the answers were generally:
1. The client was not in manufacturing and therefore did not require the cover
2. The client felt that the premium was too high (especially when compared to the public liability premium)
3. The client had very strict trading conditions which meant they either could not be held liable, or some other party had agreed to hold them harmless.
When one considers the statements above in the context of the pre-CPA era, it was not uncommon for retailers to refer injured parties straight to the manufacturer who often resided outside of the country, inevitably leaving the hapless consumer with little or no chance of restitution. Often hold-harmless agreements were in place between members of the supply chain and the consumer would in all probability have dropped the case after a frustrating goose chase.
The new CPA environment makes it difficult for anyone in the supply chain to avoid the issue of product liability due to the following:
1. No-fault liability applies to all members of the supply chain (suppliers, producers, retailers, distributors etc.)Further to this it is extremely difficult to contract out of liability using disclaimers and indemnities.
2. Agreements between members of the chain are of no consequence to the end consumer. A hold harmless agreement being as effective as a band aid over a gunshot wound. Joint and several liability applies to all. Some defences do exist for the supply chain members. These will be dealt with in a later article.
3. Products that have been imported by a member in the chain will invariably land in the lap of the importer as a last resort rather than back in the country of origin
So what does this mean for the Consumer Conscious business owner?
· All businesses should have product liability cover even if the product merely passes through their hands momentarily. Insurers of the various participants in the supply chain should apply a rate commensurate with the level of involvement in getting the product to market.
· Hold-harmless agreements are not totally useless as they may assist the business in seeking recourse (or the insurer in the case of subrogating) against the originator of the product. Such contracts will however not preclude the consumer from taking action against any of the supply chain members as discussed above.
· Importers of products should ensure that their suppliers have adequate global, broad liability covers as well as the possibility of having such policies extending to cover them as distributors
Ultimately brokers and insurers also need to advise their clients that only about 50% of what’s in the CPA can be insured against (and most of that under a Product Liability policy). The remaining 50% however needs to be managed with effective quality control, contract management, complaints management and sound regular legal advice. Remember that at Camargue Underwriting Managers we specialise in liability management. Our team of legal risk experts and underwriters can help you turn absolute liability into absolute advantage.
Camargue Underwriting Managers
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