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As by now all responsible manufacturers are aware, the Consumer Protection Act has brought about monumental changes in the way business is done in South Africa, not least of which is the ‘liability without fault’ introduced in all consumer transactions by Section 61 of said Act. This section creates liability towards a consumer for any harm or damage to property caused directly or indirectly by unsafe, defective, failed, or hazardous goods. This includes instances when the consumer has not been adequately instructed on the safe use of a product or warned of the hazards of the correct or foreseeable incorrect use thereof, regardless whether anyone in the supply chain has been negligent.

Up to 24 April 2010 (which is when this provision came into effect), a retailer, distributor, importer or producer could only be liable if they had negligently or intentionally contributed to the harm suffered by the consumer - which as we all know is, in most cases, virtually impossible for even a sophisticated and well heeled consumer to prove. However, all this has changed and we now live in the era of what I term “cause and effect liability”, regardless of any negligence, and it should be much easier for a consumer to prove the liability of the supply chain in terms of Section 61 of said Act. Furthermore, only very limited specific defences to liability can be applied, so that in most cases one or more elements of the supply chain will be joint and severally liable for any economic loss resulting from the harm or damage to the property of a consumer - and the consumer will not need a lawyer to be able to prove liability (although a lawyer will likely be required to prove the amount of damages which are claimed).

So how does a person on company in the supply chain eliminate the risk of being held liable under these provisions? You can’t! At best, by applying best practices and being diligent and vigilant, you can reduce occurrences which could lead to liability, but there will always remain a residual risk for those events which could not or simply were not prevented. It is for these residual risks that insurance will be critical as these claims are going to be more frequent and more frequently successful for higher amounts.

The question is then, what type of insurance do you, as a supplier, need? The answer can be quite complicated and does depend on where you are in the supply chain i.e. an importer, a producer, a distributer, a retailer, or in the hospitality industry. However, what is certain, is that the insurance which existed in South Africa until recently would most likely not cover you for the events which now lead to liability, as most of the older types of policies required the insured to have been negligent i.e. for there to have been an element of fault on their part, before the insurance indemnified the insured. However, under the Consumer Protection Act, as discussed above, a supplier may be liable even though you had not acted negligently in any way at all and thus where the policy only insures you when you are negligent, such a policy would not pay out if you were liable but not negligent.

Furthermore, many policies have exceptions and riders in terms of which where the insured has voluntarily accepted a risk that the law did not require them to carry, for example, by agreeing in a contract to indemnify another party (for example the retailer) for their own actions, even though there was no liability on the manufacturer as such under the Consumer Protection Act. In these instances, a claim by such an insured which had now to indemnify the retailer would be repudiated and the insured would be left out in the cold. It is thus critical that your broker or other qualified and registered professional reviews your policy and determines whether you have the right type of insurance, as well as the right amount of insurance.

A warning to those who believe that the public liability will cover any claims arising under the above provisions of the Consumer Protection Act: read your policy wording and you will likely be in for a rude awakening and sleepless nights until your new policy is in place!

 

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