When Trading Stops, the Risk Doesn’t: Why Product Liability Run-Off Cover Matters
Product Liability Run-Off Cover is something many business owners only hear about when they are preparing to close, sell or restructure. By that stage, the assumption is often that once trading ends, so does the exposure.
That isn’t how it works.
If your business has ever manufactured, imported or supplied products, those goods don’t disappear simply because the company does. They remain in circulation. Installed. Used. Embedded. Sometimes for decades.
And if one of those products causes harm years later, the fact that you stopped trading won’t prevent a claim.
Why closure doesn’t end responsibility
In Australia, product liability insurance is typically written on what’s known as an occurrence basis. That technical detail matters more than most people realise.
It means the policy that responds is the one active when the damage or injury occurs — not when the product was originally sold.
So imagine this: a product is supplied in 2022. The business winds down in 2024 and cancels its insurance. In 2027, that product fails and causes property damage.
There may be no policy in place to respond.
Under Australian Consumer Law, suppliers and manufacturers retain obligations relating to defective goods. The ACCC outlines those ongoing product safety responsibilities here:
https://www.accc.gov.au/business/product-safety
The legal exposure doesn’t switch off when the doors close.
Where issues tend to surface
Not all products create the same level of risk.
Short-life consumer items are one thing. Industrial components, building materials and electrical systems are another. Some failures take years to emerge. Electrical degradation, structural weaknesses or design faults often don’t become obvious immediately.
In construction and engineering sectors in particular, disputes can arise well beyond practical completion.
During business wind-down phases, regulators and advisers often stress the importance of maintaining adequate insurance. ASIC’s guidance on corporate governance and business transition highlights how oversight remains relevant even during closure or restructuring:
https://asic.gov.au/regulatory-resources/
The transition period is usually where gaps appear.
What run-off protection actually does
Product Liability Run-Off Cover isn’t about insuring new work. It’s about protecting past work.
It allows a business to cease trading while keeping insurance in place for claims that arise from products already supplied.
That protection can cover legal defence costs, compensation claims and associated liability exposures. Without it, once the original policy is cancelled, there may be no future protection at all.
It’s not uncommon for businesses to focus heavily on tax, employment and asset matters during closure. Insurance sometimes becomes an afterthought. Unfortunately, product liability exposure doesn’t follow the same timeline.
How long should cover remain in place?
There isn’t a fixed rule.
The appropriate run-off period depends on the type of product, how long it’s expected to remain in use, the severity of potential injury or damage, and any contractual obligations.
Some industries naturally carry longer exposure tails. Others don’t.
The key is understanding your actual risk profile rather than applying a generic timeframe.
The cost of overlooking it
Cancelling insurance can look like an easy cost saving during closure. But if a claim arises years later, the financial consequences can be significant.
Legal defence alone can be expensive. Compensation claims more so.
In certain circumstances, directors may also face scrutiny if insurance arrangements weren’t properly maintained during wind-down.
Product Liability Run-Off Cover exists precisely to avoid that situation — to provide continuity when revenue has stopped but exposure hasn’t.
A conversation worth having early
Run-off protection works best when discussed before a business closes, not after.
It allows time to review policy wording, confirm limits and structure appropriate protection based on the products supplied.
At Barrack Broking, we regularly speak with clients who are restructuring or exiting industries. The discussion is rarely about fear — it’s about clarity. Understanding what remains at risk, and ensuring it’s properly managed.
Final thought
Stopping trading does not automatically end liability.
Product Liability Run-Off Cover provides a practical way to manage the residual risk attached to products already in circulation.
If your business is approaching closure, restructuring or discontinuing a product line, reviewing your product liability position before cancelling insurance can prevent difficult conversations later.
For tailored advice on Product Liability Run-Off Cover and long-term exposure management, speak with the Barrack Broking team.
