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┬áis 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.

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