Distribution and wholesale insurance UK: stock, product liability and recall
Product liability runs up and down the chain
The Consumer Protection Act 1987 imposes liability for damage caused by a defective product on the producer, on anyone who holds themselves out as the producer by putting their own name or mark on it, and on anyone who imported the product into the UK in the course of business in order to supply it. That last limb is the one distributors underestimate. If you import, you stand in the producer’s shoes for these purposes — the fact that the goods were made three thousand miles away by someone else does not move the claim off your balance sheet.
Own-branding does the same thing. Putting your label on a factored product converts you from a reseller into the apparent producer. And a supplier who is asked by an injured person to identify the producer or importer, and who cannot do so within a reasonable period, becomes liable itself under section 2(3). That is a documentation risk more than an insurance one, and it is why traceability records matter commercially as well as legally.
The General Product Safety Regulations 2005 sit alongside this with duties aimed squarely at distributors: not supplying products you know or should have presumed to be dangerous, keeping records of whom you bought from and, where not sold at retail, whom you sold to, passing on warnings and instructions, notifying your supplier and cooperating with enforcement authorities when something unsafe surfaces. Breach is a criminal offence. Insurance responds to the civil consequences; the records are what keep the regulatory side manageable.
Recall is not covered by product liability
This is the gap that catches distributors most often. Product liability insurance pays for injury or third-party property damage caused by a defective product. It does not pay for finding the affected stock, notifying customers, transporting goods back, disposing of them, or replacing them — and it does not pay for the lost revenue while a line is off sale. Those are product recall and product guarantee covers, bought separately and underwritten on your traceability, batch coding and supplier controls.
The exposure scales with how far your goods have travelled. A wholesaler supplying two hundred independent retailers has a harder recall than one supplying four national accounts, because the notification and retrieval effort is spread across two hundred relationships. Underwriters ask about that structure directly.
The indemnities you sign for retailers
Supply agreements with national retailers routinely require the supplier to indemnify the retailer for recall costs, regulatory penalties, delisting, wasted marketing spend and consequential loss — sometimes without a cap. Those clauses are commercial reality, but they change the insurance question. A liability policy covers liability you would have had at law; liability you have created by contract is frequently excluded unless the insurer has seen and accepted the wording.
The practical answer is to route significant supply agreements past your broker before signing and to negotiate what can be negotiated: a liability cap, exclusion of indirect loss, a requirement that the retailer mitigate, and an obligation on your own supplier that mirrors what you have promised downstream. Back-to-back indemnities up the chain are how a distributor stops being the last party holding the risk. Where a claim is paid, insurers may also pursue recovery from the party actually at fault — see subrogation — which only works if your contracts preserve that right.
Stock, property and stock-dependent business interruption
For most distributors the largest single insured value is stock, and the most common error is declaring an average rather than a peak. Stock levels in this sector are seasonal by nature: pre-Christmas, pre-season, a container arriving early, a customer delaying a call-off. If the sum insured reflects a quiet month, underinsurance is decided at the moment of the fire, not at renewal. Stock declaration arrangements exist precisely to handle this and are worth asking about. The same arithmetic applies to buildings — our note on buildings underinsurance explains why declared values drift.
Business interruption for a stock-dependent business needs its own thinking. If your warehouse burns, the constraint on recovery is rarely the building — it is re-sourcing stock with lead times measured in months and, in imported goods, in shipping schedules. An indemnity period chosen on how long it takes to rebuild a shed will run out long before the business is trading normally again. Extensions covering damage at a supplier’s or customer’s premises are also worth considering where a small number of relationships carry most of the turnover; our business interruption guide works through how the sums are built.
The underwriting questions this sector gets asked
Expect questions on: peak and average stock values by location; the split between own-brand and factored goods; whether you import, and from where; the product categories carried and any with elevated injury potential (electrical, children’s products, cosmetics, food, aerosols); export territories, with US and Canadian sales treated as a separate rating question; batch coding and traceability; supplier quality assurance and testing evidence; racking height, sprinkler protection, compartmentation and flammable storage; and the contractual indemnities you have given to customers.
What a broker does differently here
We start with the contracts and the product list rather than the schedule. That means identifying where you are legally the producer or importer rather than merely a reseller, checking whether your product liability wording actually follows the goods into the territories you sell to, and testing whether recall costs and contractual indemnities are inside or outside the programme. We rebuild stock sums insured off peak values and check the business interruption indemnity period against real re-sourcing lead times rather than construction time. Apex is Bristol-based and FCA-regulated. Businesses that manufacture as well as distribute should also read our manufacturing sector guide, and those selling direct to consumers our retail guide.
Frequently asked questions
We only distribute — can we still be liable for a defective product?
Yes. Under the Consumer Protection Act 1987 liability attaches to the producer, to anyone who puts their own name or mark on the product, and to anyone who imported it into the UK in the course of business to supply it. A supplier who cannot identify the producer or importer when asked within a reasonable period can also become liable. Importing or own-branding puts you in the front line, not behind it.
Does product liability insurance pay for a recall?
Generally no. Product liability responds to injury and third-party property damage caused by a defective product. The cost of tracing, notifying, retrieving, disposing of and replacing affected stock — and the lost income while the line is off sale — sits under product recall and product guarantee covers, which are bought separately and underwritten on your traceability and supplier controls.
A retailer wants an uncapped indemnity. Is that insurable?
Usually not in full. Liability you assume by contract is often excluded from a standard liability wording unless the insurer has seen and agreed the clause, and uncapped indemnities are difficult to place. Send the agreement to your broker before signing, negotiate a cap and an exclusion of indirect loss where you can, and try to pass equivalent obligations back to your own supplier.
How should we set the stock sum insured?
On peak, not average. Distribution stock swings seasonally and with shipping schedules, and underinsurance is judged at the moment of loss. Work out the highest value you realistically hold at any point in the year, include stock held at third-party sites and in transit if the policy is meant to cover it, and ask about stock declaration arrangements that let the premium follow the actual level.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.