The China Price and Product Liability Insurance: Never the Twain Shall Meet

Home | China Law Blog | The China Price and Product Liability Insurance: Never the Twain Shall Meet China manufacturing contracts are very different from Western manufacturing contracts, for reasons which stem from differences in laws or differences in economics. This means our China manufacturing lawyers often must explain why they are doing something in China manufacturing so different from the way the client "always does it" in the West. One of the more complicated things our China lawyers often must explain is how we usually handle product liability insurance in our China manufacturing contracts. Product liability protections in China manufacturing agreements The below is an amalgamation of about a half dozen emails our international manufacturing lawyers have written to explain product liability protections in China manufacturing agreements. Th0ugh expensive, the best way to cover yourself for liability arising from the use of your company's products in the United States or in Europe is to obtain insurance in your company's name for all applicable risks. We draft our manufacturing agreements with China so the Chinese factory is liable for damages caused by defects in your product, including losses incurred due to product liability claims and losses resulting from government mandated product recalls. We do this to show the Chinese side you are serious about getting a product free from defects. As a practical matter, however, you are unlikely to have success in trying to force the Chinese factory to fund your product liability defense or your product recall. The odds of you getting a litigation judgment or arbitration award in China against the Chinese factory for reimbursement of a U.S. products/consumer liability award or government mandated recall costs are also slim. Typically, the most you can expect is a credit on future purchases. Chinese courts (like most foreign courts) believe the U.S. consumer products liability system is fundamentally unfair and they generally will not support claims based on damages awarded in the U.S. resulting from such claims. The same is true for U.S. government mandated product recalls. Repair or replace or a compensating credit is usually the most that can be obtained. So though we include the language, it does not provide much real protection. Your own insurance is what is usually required. Few Chinese factories carry or will carry insurance for matters that occur in the United States. Most Chinese factories refuse to consider the issue. Other factories will say, "go ahead and obtain the insurance in the United States, and if you want us to pay the premium, let us know the amount. We will then increase the cost of your product to cover the cost of the insurance premium. The basic point from the Chinese side is that the China price is low because factories in China take no liability for what happens in the United States (or Europe or Canada or Australia, etc.), beyond the standard repair and replace warranty for manufacturing defects. If you want to load all U.S. liability on the Chinese factory, the price will end up being close to or the same as the U.S. price. So the exercise makes no sense. We have had clients that, for various legitimate reasons, nonetheless wanted their China manufacturer to sign a contract that required the Chinese manufacturer buy and maintain an insurance policy that covered the products for product liability claims. Most Chinese manufacturers refused to sign. Many of the Chinese manufacturers that did sign ended up ignoring the provisions, stating quite accurately that such insurance is nearly impossible to get in China at any price. The American companies for the most part would then ignore the fact that their Chinese manufacturer had failed to secure the required insurance. The problem with this though is that if you include provisions in your China manufacturing contract that you will later ignore, you weaken the entire agreement. It suggests to your manufacturer that you will ignore other provisions as well. So this is not a good idea. For any China contract, it is best you include in the agreement only matters that you will take a hard line on and enforce. Most insurers have standard language they like to force on everyone and that standard language rarely works for China. We can include that language but it may mean the Chinese side will reject your entire agreement. Or maybe they will sign, knowing they will ignore it later. What are you doing to protect your company against product liability damages? Check Out Our China Law Services Share Twitter Facebook LinkedIn E-mail Comment Dan Harris Dan Harris is a founding member of Harris Sliwoski, an international law firm where he mostly represents companies doing business in emerging market countries. Most of his time is spent helping American and European companies navigate foreign countries by working with the international lawyers at his firm in setting up companies overseas (WFOEs, Subsidiaries, Rep Offices and Joint Ventures), drafting international contracts, protecting IP, and overseeing M&A transactions. In addition, Dan writes and speaks extensively on international law, with a focus on protecting foreign businesses in their overseas operations. He is also a prolific and widely-followed blogger, writing as the co-author of the award-winning China Law Blog. Harris Sliwoski Attorney Read more posts [email protected] Read More International Manufacturing Related Posts September 15, 2026 Your AI-Drafted China Contract Says It Needs a Lawyer. Listen to It. September 11, 2026 Forensic Accountants in China Business Litigation: How True Numbers Can Tell the Wrong Story September 4, 2026 China NNN Agreement or Trademark Registration? You Usually Need Both September 1, 2026 AI Didn't Replace Lawyers. It Gave Us the 48-Page Contract. August 27, 2026 Do I Need a China NNN Agreement or a China Manufacturing Agreement? Usually Both. August 26, 2026 China’s New Overseas Investment Rules: Can Your Chinese Investor Actually Get the Money Out? August 24, 2026 International IP Protection for Startups: What to Protect and Where August 19, 2026 The Documents Are the International Deal August 19, 2026 China Supplier Fraud in Yiwu: Why We Recommended the Police, Not a Lawsuit August 17, 2026 China Trademark Registration: Why U.S. Companies Need More Than a Filing Agent August 10, 2026 Buying Expensive Equipment from China: Seven Questions to Answer Before You Pay August 7, 2026 DDP Shipping Risks: What Boise Cascade’s Guilty Plea Means for U.S. Buyers August 6, 2026 Protecting Your Artwork Internationally: What Artists Need to Do Before the Work Travels August 5, 2026 Your China Employee Signed the Vacation Policy. You Can Still Lose. July 29, 2026 The RedNote Contract Lesson for Companies Doing Business in China Leave a comment Cancel reply