How to Minimize Business Risk with Product Liability Insurance & Employee’s Compensation Insurance 2020

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Written By Arthur Bond

Doing business in any jurisdiction comes with many risks and Hong Kong is no exception. 

Known as the “gateway to the East,” Hong Kong is a major financial center and is a very attractive location for those looking to do business in the Asia-Pacific region. 

But the strong Western-style legal protections that make Hong Kong such an attractive place to do business also add risk to the equation.

Two of the biggest risks of doing business in Hong Kong involve product liability and liability of employers for employee injuries. 

If you are involved with a product that causes bodily injury or property damage to the end-user, you can be sued.

If your employee is injured while in the course of their work, you can also be sued. 

Prudent business owners should protect against these two major liability risks with product liability insurance and employee compensation insurance.

Product Liability Insurance

How to Minimize Business Risk with Product Liability Insurance & Employee’s Compensation Insurance

Put simply, product liability insurance in Hong Kong is designed to protect your business from financial harm in product liability cases. 

Legally speaking, you can be found liable for bodily injury or property damage due to some defect in a product that you sold, manufactured, distributed, or otherwise handled. 

The definition of “product” extends to include the design of the product itself as well as any parts or components that go into it.

But as if this broad range of responsibility wasn’t enough, you can also be liable for injury or damage arising out of failing to provide adequate instructions, demonstrations, or warnings about the product in question.

With this many potential targets, lawyers in product liability cases prefer to take a scorched earth approach suing everyone who’s ever touched the product in search of the deepest pockets. 

All this put together means significant product liability risks for manufacturers, importers, retailers, distributors, wholesalers, assembly/installation businesses, and the like.

Even if you’re not genuinely responsible for the loss, you can be caught up in a lawsuit.

Luckily, if you carry product liability insurance, the insurance company will pay any damages awarded against you in court up to the selected policy limit. 

With settlements easily reaching into tens of millions, not carrying product liability insurance could be a fatal mistake for many businesses.

On top of this, an often overlooked aspect of liability insurance is that since insurance companies are on the hook for paying damages, they also have the right and duty to defend you in court. 

Even if the lawsuit against you is frivolous, lawsuits can cause serious financial loss to your business.

The cost of hiring lawyers, court fees, bonds, expert witnesses, and testing is not cheap and lawsuits can drag on for years. 

With product liability insurance, the insurer will put their best and brightest lawyers on the case to help you win the lawsuit.

Not only are the financial savings huge, winning a lawsuit can help preserve your business’ good reputation. 

Employees’ Compensation Insurance Hong Kong

How to Minimize Business Risk with Product Liability Insurance & Employee’s Compensation Insurance

Earlier in this article, we spoke about the Western-style laws that govern Hong Kong.  These legal protections also extend to protections for workers.

Like in most Western countries, Hong Kong has labor laws that protect employees who become injured on the job. 

The Labour Department passed Hong Kong’s Employees’ Compensation Ordinance (EC Ordinance) that requires employers in Hong Kong to carry insurance that protects employees injured while in the course of their duties whether they are in Hong Kong or not.  

For example, if an employee is injured in a car accident while making a delivery or if your warehouse worker hurts their back lifting a heavy crate, you would be liable for compensating them for their injuries. 

Expenses can include medical expenses, rehabilitation, attendant care, or lost wages.

If you have one or more employee, including domestic, part-time or seasonal workers, you must get this insurance or face penalties under the EC Ordinance. 

Penalties for failing to purchase adequate insurance can range from fines of up to HK$100,000 to imprisonment for up to two years.

You may also need to pay a surcharge into the Employees’ Compensation Assistance Fund.

The EC Ordinance specifies minimum amounts of insurance. 

A business employing less than 200 employees must purchase a limit of insurance of HK$100 million and a business with more than 200 must purchase HK$200 million worth of insurance. 

Employees of a Hong Kong-based business that work outside of Hong Kong either temporarily or permanently are still required to be insured but must also be listed as such.

Subcontractors don’t have to be insured under your employees’ compensation policy but you are responsible for retaining a copy of their certificate of insurance.

Of course, these are just minimum limits and employers are free to purchase more for their employees. 

Actual amounts paid out by insurers will depend on the severity of the injury, age, employee salary, limits purchased, and many other factors. 

To claim compensation for your employee, you must file a report with the Commissioner of Labour and the insurer providing cover.

Depending on the business you operate, you might not be able to purchase employee’s compensation insurance on the regular market. 

If you have been denied cover by three different insurers or have been quoted premiums over 30 percent the standard market rate, the Hong Kong government has established an Employees’ Compensation Insurance Residual Scheme Bureau to provide EC insurance to “high risk” businesses. 

But no matter how expensive your insurance premiums might be, you are not allowed to deduct premiums from your employees’ paycheques to pay for this insurance.

Another responsibility that falls onto the business owner regarding EC insurance is to notify insurers to any hiring or firing of employees. 

You should also be very specific and careful when filling in the insurance application forms as the job classification for each employee will affect the premiums paid. 

Your broker can usually help with this.

Overall, the strong rule of law in Hong Kong makes it a very attractive place to do business in the Asia-Pacific region. 

Based here, you can expect very strong legal protections for your business and accountability from business partners. 

But it is a bit of a double-edged sword in that these same strong laws increase the risk of doing business here as well by making your business more susceptible to product liability and liability for employee injuries.

On balance though, the risks are well worth the rewards as prudent business owners can mitigate the liability risks with adequate product liability insurance and employees’ compensation insurance.

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