China product liability insurance

Insurance is often an issue in the manufacturing contracts we write with Chinese manufacturers. Our clients often tell us they want a provision in their contract with their Chinese manufacturer that makes clear the Chinese manufacturer must secure X dollars in insurance protecting our client from any harm the Chinese manufactured product might cause. Our clients then mention that they want this insurance to name them as a third party beneficiary. More than anything, our clients want protection if the product they buy from China ends up injuring people or damaging property in the United States and/or Europe or Australia or Canada.

Our lawyers’ standard response is that we are happy to put such a provision in the contract, but it is dangerous to rely on it and it will increase the cost of the products our client buys.

We then explain how Insurance in China is a somewhat wild and wooly industry and many (most?) Chinese manufacturers have little to no insurance on the products they sell. We also tell them of how our China lawyers have seen many instances where Chinese companies agreed to purchase insurance but never did and even instances where Chinese companies sent out fake certificates of insurance to “prove” what they had purchased. We then explain the high cost and great difficulty of ensuring the Chinese manufacturer has secured the insurance it contractually promises to secure. Lastly, we mention how in the end the Chinese manufacturer will add its insurance costs to the products it sells.

We then mention how even if the Chinese company really does buys insurance (using our client’s money via increased product pricing), it will likely be really difficult to collect on that insurance from a Chinese insurance company if ever there is actually a problem. And though it is conceivable that a US or EU insurance company would write the policy for the Chinese manufacturer, the chances of this happening are exceedingly low.

We then strongly suggest how it might be easier/cheaper/safer for our client to secure its own insurance, rather than rely on its Chinese counterpart. Virtually without exception, they agree. Why pay someone else (through increased product pricing) to buy Chinese insurance that you probably can never be certain exists and will be difficult if not impossible ever to collect against? Why not just buy and pay for the insurance yourself?

Our clients almost invariably end up agreeing with us.

The takeaways from all of this are the following:

  • Insurance does matter.
  • Insurance you have gotten yourself, through people you know, is usually a much safer bet than relying on your Chinese counterpart.
  • Even foreign companies doing business in China may have less insurance than one would tend to believe.

 

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.