In the world of business, safeguarding your company from potential risks is paramount. One of the key types of insurance that can protect your business is product liability insurance. But who really needs it, and why is it so important?
What is Product Liability Insurance?
Product liability insurance is a type of coverage that protects businesses from claims related to the manufacture or sale of products to the public. It is usually a part of the General Liability coverage. This insurance covers the legal costs and damages associated with claims of injury or damage caused by defective products, including design defects, manufacturing defects, and marketing defects such as improper labeling or insufficient safety warnings.
Who Needs Product Liability Insurance?
Any business involved in the production, distribution, or sale of products should consider product liability insurance. This includes manufacturers, wholesalers, distributors, and retailers. Even if your company is not directly involved in manufacturing, you could still be held liable for damages if a product you sell or distribute causes harm.
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Manufacturers: If you create products, you are at the forefront of potential liability. Any defect in the design or manufacturing process can lead to claims.
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Wholesalers and Distributors: Even if you don’t make the products, you are part of the supply chain and can be held liable for defects.
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Retailers: Selling products directly to consumers means you could be liable for any harm caused by those products, regardless of whether you manufactured them.
Why is Product Liability Insurance Important?
Product liability insurance is crucial because it provides a safety net for businesses against potentially devastating financial losses. Legal battles over product liability can be lengthy and costly, and without insurance, these costs could severely impact your business’s financial health.
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Financial Protection: Covers legal fees, settlements, and judgments that could otherwise drain your resources.
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Reputation Management: Helps manage the fallout from a product-related incident, protecting your brand’s reputation.
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Compliance and Contracts: Some contracts and regulations may require you to have product liability insurance to operate legally or to partner with other businesses.
What Does Product Liability Insurance Cover?
Product liability insurance provides coverage if your product or completed service does one or more of the following:
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Damages another person’s property
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Causes bodily injury
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Makes another person ill
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Causes a person’s wrongful death through the use or misuse of the product, lack of safety warnings or improper instructions
Product liability insurance doesn’t cover services but does cover the results of services provided — for example, damages that resulted from a contractor’s work on a claimant’s property.
Below, learn more about what product liability insurance covers and what is excluded.
Defective Products
Product liability insurance can provide coverage against lawsuits over damages caused by defective products. A defective product refers to an item not fit for its intended purpose. A defect may also make the product unsafe for use.
There are different types of defects:
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Design Defects: A design defect makes the product risky to use even if it’s used properly. The person suing over liability must identify the product’s defect, show how the defect led to harm and demonstrate they were following instructions when using the product.
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Manufacturing Defects: A manufacturing defect occurs when a manufacturer doesn’t follow a product’s design plans. This may include using incorrect parts, making mistakes during the assembly process or allowing the product to be contaminated by hazardous materials.
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Marketing Defects: A marketing defect occurs when a company includes insufficient instructions and warnings or improper labels for a product that led to harm.
Wrongful Death
In a lawsuit over a wrongful death, a claimant could sue for three types of damage:
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Economic Damages: A family member of the deceased could sue for the loss of financial security. For example, a spouse or child can sue for the loss of the spouse’s or parent’s income.
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Noneconomic Damages: A surviving spouse or child could sue for pain and suffering, emotional distress and missed future enjoyments due to the wrongful death of the spouse or parent.
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Punitive Damages: A court can impose punitive damages, such as additional payments, if they believe the manufacturer or other party being sued was reckless in its actions or failure to act.
Exclusions
A product liability insurance policy typically includes reasons why the insurance provider may deny your claim, not provide coverage or choose not to renew your policy. These are known as exclusions.
Product liability insurance might include these common types of exclusions.
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Product Recall Exclusion: Most product liability insurance policies don’t cover costs related to inspecting, withdrawing, repairing, replacing or losing the use of a product if it’s recalled.
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Quality Control Exclusion: Insurance companies typically require manufacturers and distributors to maintain quality control standards for their products to ensure they’re safe for people who buy or use them. If a business fails to maintain quality control, the insurer is unlikely to provide coverage.
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Reporting Exclusion: If you fail to report a new manufacturing method, product, material or ingredient, your product liability insurance will not cover claims related to that product.
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Efficacy Exclusion: If your product doesn’t perform its main function, your product liability insurance will not cover any claims against it.
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Material Exclusions: Many policies don’t cover certain ingredients or materials. If you manufacture or sell a product that contains one of those ingredients or materials, your product liability insurance will not cover claims against it.
Protecting Your Business
Having product liability insurance is not just about compliance or ticking a box; it’s about ensuring your business can withstand unforeseen challenges. With the right coverage, you can focus on what you do best—running your business—while having peace of mind that you’re protected against potential product-related claims.
For more information on how product liability coverage can benefit your business, or to discuss the best coverage options for your specific needs, reach out to Navigate Risk Advisors today. Our team is ready to assist you in finding the right protection to help you sleep better at night.
