Is Your Small Business Legally Covered by Product Liability Insurance?


Product liability insurance is a requirement for just about all types of businesses. If at the manufacturing level, something is made defective, insurance is needed there. If this defective product works its way through the chain to wholesalers and then retailers, both can be sued too, therefore, it is incumbent upon them to buy product liability insurance too.

Product liability insurance covers the manufacturer or seller’s liability to the buyer, user or just someone who might have been injured standing next to the product. A defect or malfunction in the product design is what you are being protected against, in the age of lawsuits, some frivolous. If a warning label, like on a motorcycle, was not included, this can be grounds for damages in a lawsuit.

Commercial sellers and re-sellers fail to obtain insurance in many cases because they think that they did not manufacture the product and are not libel. This is a grave mistake. Most states in the United States adhere to the “stream of commerce” notion. This states that if you are involved with the product in any way from manufacture to resale, to sell and to use, you are in the stream of liability. You must check your general business insurance to see if liability insurance is included.

If you under-report the sale of potentially defective or dangerous products to pay a lower premium on liability insurance and are caught, there are steep penalties applied. It is also important to list your items accurately. If you list an item that is more dangerous to the user as one that is not, then you will pay unnecessary higher premium rates. An example being a ladder is more dangerous than a chair, so you do not want to count chairs as ladders sold. Report your sales accurately, premiums are charged by item and volume of sales.

When you go into business liability insurance and product liability insurance must be counted in when figuring how much money is needed to start a business. Many people omit important costs of doing business and run into financial problems early in the life of the business.

Taking a Closer Look at the Benefits of Defective Products Liability Coverage

A liability insurance plan for products is appropriate for all industries where the need for paying damages on account of defective products may arise.

There are some features of this policy that cannot be overlooked, these are listed below:

    • The policy pays for costs that the insured is lawfully responsible to pay as a result of unintended death or injury, including damage to third party property due to any fault in the product manufactured.
    • Exports to other countries can be covered, and domestic sales are also of course covered.
    • Products manufactured by accredited manufacturers on their own trade name can also be covered under the same policy.
      There are also some benefits involved, these include.
  • Claims as a result of accidents during the policy period due to defects in the product can be covered by the insurer.
  • It covers injury to the third party and contamination liability on account of products covered.

The main reason for this type of policy is simply to guard against liability. In case a product is sold, and it is found to be unsafe, the seller can avoid expensive consequences in case a customer is injured from it in some way.

It can also provide extra guarantees, in case someone finds the product defective, the company can avoid a potential lawsuit or charge of parody.

The company can help ensure that the product is safe
and meets the consumers’ specific safety needs.

If an occasion arises where the product doesn’t work, the seller will be able to cover the situation and make sure that it is repaired and works accurately.

Why Protect Your Business With a Product Liability Insurance Policy

Product liability insurance goes further than a general liability insurance policy. While in some instances general liability coverage, offers coverage for product liability, to a certain extent, a product liability insurance coverage specifically protects against damages which a product you supply may cause.

Additionally, it provides protection from unforeseen occurrences such as product defects.

Oftentimes, business operators overlook the dangers that could occur from use of a product they sell, manufacture or distribute. Consequently, many businesses today are faced with numerous lawsuits and claims of injury, for which they are unprepared to handle legal liability.

Consumers at times find the design of a product unsafe. The defect sometimes may be a part of the manufacturing process. In the event a product you supplied was unsafe or has caused damages as a result, your legal implications of product liability would be covered by your risk policy and would serve as a protection for you in this case.

There are occasions also where the directions on how to use the product were insufficient or were just not available. Under these circumstances, someone can misuse the product causing injury to himself and others, or damage and loss to a third person’s property.

You, the supplier can be held liable for the damages caused, as it is essential that warnings about a product and directions on how to safely use should be included with the product.

If you operate any business that manufactures, refurbishes, sells or distributes a product in any manner, it is essential to protect your business from damages of this nature. A liability insurance coverage can save your business from major financial loss and in some cases total ruin.

One Way To Tell If Your Business Needs Insurance for Product Liability

Most businesses that sell products know that they might have product liability issues surface in the future, but few understand if they need liability insurance, or what type of liability insurance to get.

Business liability insurance does usually have some product liability coverage, but some businesses will actually need a policy specifically for product liability.

One way to evaluate whether or not your business needs an insurance policy for product liability risks is to consider the risk level of the products you sell. Do you sell anything that could logically cause harm?

For example, if you sell tools, such as hammers, screwdrivers, power tools, and utility knives, it’s not unreasonable to think that your products could cause physical injury or damage to property if an accident happens, or if they are improperly used.

If you sell clothes, on the other hand, the risk of property damage or injury is much less. Considering the risk level of your products is one of many ways to determine if you need a product liability policy.

When I ask the average person what they think about product liability insurance, the response I get usually is something like, “Go look it up on the internet – I don’t know!”

While it can be something that the average person doesn’t understand or doesn’t know much about, a product liability insurance policy can be one of the most important things a business owner who deals with products in any manner could carry.

Product liability insurance protects businesses from financial expenses that can come up during legal claims or lawsuits revolving around an injury to persons or damage to property because of a defect in a product.

Any entity involved with the product can be held liable – the designer of the product, the manufacturer, the distributor, and the retailer.

A Few Simple Tips When Applying for Product Liability Coverage

product-liability-claimProduct liability insurance belongs to a type of liability insurance coverage, which typically does not contain a general structured plan.

It is dependent on the type of business, like some may want to purchase the policy for sports goods or any other popular sort of business, and some may want it for an industrial or a less publicized business.

The companies involved in making goods are in a huge need of insurance as there is a usual practice to sue the firm for manufacturing defects, product imperfection, bad output, etc.

There are a lot of points that you need to keep in mind while planning to purchase a product liability insurance policy.

Furthermore, you should be very careful
while selecting your insurance agency.

Here are some tips that prove to be very helpful in the process of selection of an insurance agency and policy:

  • Have a thorough look at the areas covered by the insurance policy and see if it legally covers complex issues.
  • Many of the business professionals are not clear about their insurance coverage; it could be a result of an intentional or may be the unintentional lack of explanation by the insurance expert in the haste of selling the policy. In fact, many of the people confuse the term product liability with general public liability insurance.
  • It is worthy to note that both the policies are quite different from each other. Product liability insurance is meant to shield the business owner from any lawsuits resulting from a bad yield; whereas the policy that deals with all kinds of community dealings involved in a business is what we call a public liability insurance policy. As a matter of fact, both insurance plans are equally important for running a safe business, but most of the time people think that the policies as an alternative to each other.

The wiser decision is to choose an insurance plan that has qualities of both the policies and provides wider coverage.

How to Know If Your Business Needs Product Indemnity Insurance

Liability is not a word many sellers and manufacturers like to use or hear in a sentence containing one or more of their products. However, like it or not, product liability is major theme that, whether you make, sell, or lease a product, you should be well aware of.

Unfortunately, somewhere along the way in your business, more likely than not, you will be found liable for an injury caused by a product that your business sells to the public.

Having adequate defective products indemnity insurance coverage is essential to anyone who distributes products (whether you make, sell, or lease them does not matter). There are basically two types of product liability.

Understanding these will not only help you in realizing why you need product liability insurance but also help you prevent any future insurance claims. The first type of product liability is based on fault.

If a person is injured by a product because the product was misrepresented to that person, such as omitting to disclose a defect about the product, the distributor of that product can be held liable for intentional misrepresentation or fraud. If the product is assembled incorrectly, the product failed to be tested, or failures of due care are committed by the distributor of the product, that person can be held liable through an act of negligence.

The second type of product liability is that which is based on strict liability. Strict liability is a somewhat more advanced topic, as it applies liability without fault. It is under this type of product liability, for instance, that a product would fall if there a defect that results from inadequate instructions.

Questions concerning strict liability and its implications on your product would be best left to an attorney to answer on a one on one basis. Regardless, hopefully, this small introduction to product liability does help express the magnitude of product liability. Product liability is applicable to every product manufactured, sold, or leased. Therefore, product liability insurance is essential to all those who distribute products.

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