What happens if you are sued in a class action by retailers in China, Vietnam and Thailand when you haven’t even contracted to sell your products there? They have the right to sue you under their own countries’ tort laws, and even though you successfully defend the action, it costs thousands in legal fees.
Will your insurer pay out? This is just one of a myriad of issues that can arise if your product or service is available overseas. In this case, unauthorised sales of milk formula resulted in claims by retailers against the Dutch manufacturer. The retailers claimed it had negligently allowed its products to be made available in their countries. The claim was weak, but still had to be defended against in court, at great expense. Luckily for the Dutch dairy company, its insurer paid out.
When supplying goods or services across borders, your business will need to ensure that the necessary insurance policies are in place to protect against any unexpected claims or losses. Your current insurance policy might well exclude liability for claims made outside the UK.
The key cross-border policies include, but are not limited to:
- export credit insurance– insures against potential losses arising from goods or services where the buyer is unable to pay due to insolvency, bankruptcy or political events (such as war, terrorism, riots or revolution).
- general commercial insurance – whilst it is possible cover losses covered by policies such as product liability insurance, when dealing with cross-border transactions, these policies must be bespoke. Therefore, when seeking to cover cross-border transactions, businesses will need to approach an insurance broker to ensure that the cross-border element is covered in the policy. This should not be left to chance as sub-contractors, end customers and third parties may still bring action even when they are not a party to the contract with the UK business.
Note that UK Export Finance (UKEF) insures against potential losses under an export contract where the exporter has been unable to get export credit insurance from the private sector. UKEF export insurance covers up to 95% of potential losses arising from the buyer failing to pay due to insolvency, early termination before the goods are shipped, new import restrictions or outbreak of war.
And as the example given in the beginning of this article, sometimes you need insurance to cover you even when you are not actively exporting to retailers. Our team can assist you with the related contractual arrangements and also with issue-spotting based on your business model.