In this blog post we will discuss what product liability insurance is, how it works, and who needs it. We’ll also talk about how to get this type of coverage and why getting it could help save your business from financial ruin due to a lawsuit.
What Is Product Liability Insurance?
Product liability insurance is a type of coverage that provides protection for the manufacturer, seller, and distributor of goods in the event they are sued due to personal injury or property damage.
When you are manufacturing, distributing or selling a product that ends up with flaws, defects, or failures and these defective products cause bodily injury or property damage, your company can be held liable.
Product liability insurance transfers risk of legal action against the insured party for physical damage or bodily injury caused by a product to the insurer.
Product liability insurance can be required by law if you sell products directly to consumers.
How Can a Product Liability Lawsuit Affect Your Business?
If your small business sells a product with a design or manufacturing defect or the sale of that product leads to an injury, death or property damage, you may end up on the wrong end of a lawsuit.
The company that manufactures or sells a product could be held liable if it has a defect and causes injury or property damage to the consumer.
If your manufacturer’s product has an inherent design flaw then you might want to reconsider how they produce their products.
Once there is something wrong with one product distributed to the public someone else could end up hurt when using another similar item manufactured by them.
Product Supply Chain Liability
Supply chain liability means that any person or company who helps make or sell the product could be held responsible for anything bad that happens because of the product. That includes the people or companies who designed and manufactured the parts, and all of the people in between, like manufacturers and wholesalers.
Since these defects are often handed down from production line-to-production line before being fixed due bad quality control as well as low budgets behind all this which means more expenses come into play such as lawsuits filed against defective manufacturers.
Your business could face financial devastation due to the unfavorable judgments awarded by the courts in a lawsuit.
Product liability insurance can help protect your business from the legal costs associated to a claim or lawsuit.
The product that you produce or sell may be subject to strict safety standards, but accidents happen and sometimes those products are defective in some way which leads an injury-causing accident with someone else’s property.
What Does Product Liability Insurance Cover?
Product liability insurance helps to protect your business from third-party injury claims from property damage or bodily injury caused by the products you manufacture, distribute or sell to others.
One of the benefits to having a quality product liability insurance policy is that the insurance company will take responsibility for any injuries or deaths related to your products. This means you won’t have to deal with those kinds of lawsuits, which can be stressful and expensive.
These claims come at the company from multiple angles. Claims that can be made by either manufacturing defects, design defects, or inadequate labeling.
Product liability insurance covers the cost of defending your company in a lawsuit and any settlement or judgment awarded to an injured party.
Who Needs Product Liability Insurance Coverage?
Product liability insurance is essential for product manufacturers, wholesalers, designers and even online retailers such as e-commerce sites selling private labeled products or drop shipping for another company.
It is important to know that a product liability claim could target your business, regardless of where it stands in the distribution chain.
What happens if your product injures someone?
Protect against the risk with a policy today.
So, if you manufacture, sell or distribute any kind of products like food, children’s toys, electronics, or anything else that could cause bodily harm to the public, you should have protection from product liability claims in place.
How Does Product Liability Insurance Work?
Product liability insurance can help safeguard your business from potential damage or harm that could be caused by a defective product.
If you are ever faced with the situation of someone claiming physical injury or loss due to one of your faulty products, then this type of policy will step in and cover any costs associated with these claims.
It covers defense costs, settlement payments or judgments awarded to injured parties if you are found liable for their damages as well any court costs and legal fees associated with defending against these claims in trial proceedings (should they arise).
What’s The Difference Between Product Liability and General Liability Insurance?
Choosing the right product liability insurance is not an easy decision for any business owner. Liability insurance can protect a company or individual if they are sued because of injuries that were caused by their products. There are two types of liability, general and product, and each type has different coverage options to choose from.
General liability insurance is a type of coverage that can protect you from bodily injury, property damage and other claims from your business. General liability covers injuries on someone other than the insured person. But, product liability only covers injuries caused by your business’s products.
General liability insurance does not cover the product you are selling. Product Liability Insurance is what your company needs to protect itself from general claims involving bodily injuries and property damage, which can arise in many different ways including faulty products that cause injury or malfunction of a device due to poor design.
A General Liability policy protects your business from general liability claims involving property damage or bodily injuries. This type of policy cannot handle all types of exposures as seen with product liability cases where there may be hundreds involved who could have been injured by one defective vehicle component for example such as brakes on an automobile.
General Liability only covers damages caused by personal negligence so if someone was injured because they were driving recklessly then this would come under “personal” rather than “product.”
While General Liability may protect businesses against cases of bodily injury, it is not designed to provide coverage for liability involving product recalls.
The General Liability policy is a crucial component of everyday business but it does not cover all. A Product Liability policy will be the best protection for companies who want to limit their liability in case something goes wrong with one of their hazardous products and someone gets hurt or property is damaged because of that product.
Product liability insurance provides protection for all expenses if someone gets injured because of your products or services. General liability will cover any lawsuits filed against you but not expenses related to your products or services.
It is strongly encouraged to have both general liability and product liability risk coverage.
What Is Products-Completed Operations Insurance Coverage?
Products-completed operations is a form of liability insurance coverage that protects the insured company from claims and lawsuits in the event of injury caused by your business products or completed operations that occurred away from your business location.
If your business manufactures or sells a product or provides an off-site service, you could be sued by someone if they are hurt or damaged after the job is concluded. That is why it is important to have this type of accidental hazard coverage.
Businesses that provide a professional service can have completed operations claims. These are when something is done away from your business location that ended up causing injury to a person or property damage.
For example, let’s say you sell power tools and a customer buys a table saw to work on home projects and they have an accident and badly cut themselves with the tool. They might claim it was the tool’s fault and due to a product defect, they end up filing a lawsuit against your company.
3 Types of Products-Completed Operations Liability Insurance Claims
- The company claim is about products or work completed that caused people to get hurt or property to be damaged.
- The injury or damage to property must be connected to the products or services your business transacted.
- The property damage or bodily injury occurred after the product is no longer at your business or after you had completed a service.
Products Completed Operations Aggregate
Products-completed operations aggregate refers to the total amount of coverage you have in your general liability policy in cases where your business completes a service or delivered a product that causes damages to them in some way.
This is the maximum amount of money your general liability policy will pay for products or completed operations liability claims.
Extended Completed Operations Coverage
Extended completed operations insurance is extra coverage that is added to some general liability policies. This optional endorsement will give you extended protection (for up to 10 years after the initial policy term). This way if the property gets damaged or someone gets hurt after the policy expired your business will stay protected.
Elements of a Negligence Cause of Action against a Product Manufacturer or Seller
Every product has the potential for causing injury – it’s a matter of who is to blame.
But what are these elements of negligence in product liability?
First, if you own or control the design and production process then that means there’s something wrong with your safety measures because anything can go wrong at any point during those processes.
If this happens on someone else’s property, they’re responsible for damages unless they were warned about possible dangers beforehand as well as given notice afterwards.
Another element is whether or not enough was done by way of warnings so people could use their intelligence to make an informed decision before using a dangerous device themselves without being tricked into doing so through deceptive advertising practices like hiding risks involved when purchasing from dishonest sellers such things would
How Much Does Product Liability Insurance Cost?
Product liability insurance is a necessity for many industries. But, how much you spend on coverage can vary based on the type of product or service provided and also which industry your company falls under.
Beyond your industry and the type of products you sell, the size of your company is a factor both in terms of how many employees you have, and your revenue.
The average cost of product liability insurance for small businesses is around $2,500 per year on average but this can be much higher for high-risk products such as firearms, motorcycles, and children’s products.
Where Can You Buy Product Liability Insurance Coverage?
Product liability insurance can be purchased through an independent agent or broker, a captive agency (which is owned by the company), and some major carriers.
It is suggested to only contact the providers whom have an “A” or higher financial strength rating from A.M. Best.
The process of finding coverage will depend on what type of industry your business operates. It is recommended to work with an insurance agency that specializes in your particular vertical.
Most insurance agencies will have you fill out an application for a quote. This application will ask questions about the type of business, products and services sold.
Get a Quote Today
When it comes to product liability insurance, there is no one-size-fits all strategy. The best way for small business owners to assess their risk and decide on the right coverage limits is by speaking with an insurance agent specialist in the field or an independent broker who can help them understand what they need at each stage of their company’s growth cycle.
If you’re ready to start exploring your options, or get product liability insurance, it will be important to fill out an application for a quote. This application asks questions about the type of business you have and what products or services are being sold.