The Ultimate Guide to Product Liability Coverage

Guide to understanding product liability coverage
The ultimate guide to understanding product liability insurance coverage.

Learn how to properly protect your product business against claims of injury or damages due to products your business sold or supplied.

You have a great product. You have spent days, months, years making sure that it is the best that it could possibly be. You’ve thought of everything, from the product packaging and the warning labels to the product distribution and everything else in between.

However, before you take this product to market, it is essential to cover your assets to protect your business from any potential issues that could arise from claims of personal injury, product damage.

Even the most successful companies can accidentally bring a faulty product to market, and this risk is not exclusive to them.

Any company of any size can find themselves in a situation where they need insurance to cover product liability. Protecting yourself with product liability insurance is a necessary precaution to take, no matter the size of your company or the complexity of your product.

Having product liability insurance is an important first step before bringing any product to market and can help save your company if a faulty product is ever produced.

Keep reading to learn all about product liability insurance. This comprehensive guide includes information on what product liability insurance is and what types of businesses need it.

A checklist that helps you know if product liability insurance is right for you is included, and we will look at how product liability insurance differs from other insurances on the market.

Lastly, we will share with you the best next steps to take to find the right insurance policy for you.

What Is Product Liability Insurance Coverage?

Product liability insurance is a policy that provides protection under circumstances that may arise due to a product defect.

This type of insurance coverage can protect you from a wide range of issues that are likely out of your control, such as product recalls, equipment failures, and many additional issues that modern-day businesses and supply chains face.

Even the greatest of products could fall subject to issues that are covered under product liability insurance, and you simply never know what will happen in the future.

Just like, you would not get behind the wheel of a car without drivers insurance (even if you were a completely competent driver with an accident-free record); you should never bring a product to market without the proper insurance coverage in place.

By protecting yourself with product liability insurance, you can rest assured that you and your business are protected from the worst-case situations and will help you navigate the unfortunate circumstances that simply can happen once someone purchases a defective product.

How to Know If You Need Product Liability Insurance?

Not every company is in the product manufacturing business, so not every company needs product liability insurance.

If you are unsure whether or not product liability insurance is for you, use this checklist to decide.

Who Needs Product Liability Insurance Coverage?

Many business owners are uneducated when it comes to understanding the type of coverage they actually need.

For example, most carry General Liability Insurance and assume that is the only policy they need but they couldn’t be more wrong.

Let’s take a look at who actually needs to carry a products liability policy.

You will need A product liability insurance POLICY if:

  • You manufacture a product
  • You commissioned the manufacturing of the product
  • Your company’s name is on the product or its packaging
  • You use materials from an unidentified supplier or one that is no longer in business

Analyzing your company’s supply chain is just one way to tell whether or not your company needs product liability insurance.

Another method is by looking at what type of business your company is in.

Your business needs product liability insurance if:

  • Your company’s name is on the product or packaging
  • Your business offers product repair or repurpose
  • You are a firm that manufactures a product that you or others sell

If any of these apply to you, product liability is important to have for your business. However, there are always exceptions as this list is not exhaustive. Keep reading to learn more about product liability insurance.

What Does Product Liability Insurance Cover?

Now that you know whether or not your company needs product liability insurance, it is important to understand the types of claims that product liability insurance can cover.

There are a number of different claims that fall under product liability insurance, so it is important to understand the details of this type of coverage.

Some claims covered by product liability insurance include accidental contamination, flawed marketing, government recalls, and more.

Here is a comprehensive list of the types of protection you will have with product liability insurance:

  • Accidental contamination: a product is accidentally contaminated with a substance that is harmful to the consumers of the product
  • Insufficient labeling: inaccurate, misleading, or uninclusive product labeling that results in consumer illness or harm
  • Manufacturing or product flaw: this type of issue arises from poor manufacturing practices
  • Product defect: accident product defects can be caused by insufficient testing or a poor design and can lead to consumer harm
  • Extortion: malicious behavior can cause any of the above situations and more, all of which are covered under product liability insurance
  • Flawed marketing: increasing sales of a product through misleading or inaccurate marketing can result in a product recall
  • Government recall: if a product is deemed unsafe by the government, they can enact this type of recall and force you to remove your product from the market

There are certainly many ways that product liability insurance can help protect your business. Just from this list alone, it is clear that there are many ways that product fault can occur and ways that your company could be potentially liable.

That is why product liability insurance is so important. It can help protect you from fault under the circumstances listed above. However, there are also many more advantages too.

How Having Product Liability Insurance Coverage Can Actually Save You Money

In the end, investing in product liability insurance sooner rather than later can save you a lot of money, and the financial stability of your business, in the long run. In addition, product liability insurance can be more affordable than you may think.

In low-risk product categories, the cost of liability insurance can start at about $0.25 per every $100 in revenue. This is a very low price to pay in the grand scheme of things.

Without product liability insurance, your company could face paying upwards of $30 million in damages, plus the added costs associated with pulling a product from the market and lost wages.

Overall, having product liability insurance is the best way to protect yourself from the unforeseen circumstances that can occur in the product business.

It is better to protect yourself today than wish that you had coverage tomorrow.

What Is Not Covered by Product Liability Insurance?

As essential having product liability insurance is to the livelihood of your business, it is not exhaustive of all areas where your business needs to be covered.

There are many other types of business insurance, such as worker’s compensation, professional liability insurance, and property insurance.

However, having product liability insurance is an important part of your overarching coverage.

Unlike these other policies, product liability insurance does not cover:

  • On-premises injuries, such as slip-and-fall
  • Employee injuries
  • Product recall costs
  • Product damage
  • Lost inventory
  • Professional liabilities

Even though product liability insurance does not cover these situations, it is still important to consider alternative insurance policies that do.

Depending on your type of business, you may or may not be at risk to the above situations, so be sure to select the proper policies relevant to your unique company.

Product Liability and Criminal Action

Additional acts are also not covered under product liability, such as criminal action. There is a fine line to walk between not knowing a product is faulty, and knowing that a product may cause harm and bringing it to market anyway.

When someone knowingly sells a faulty product or sees a faulty product being made and does nothing to stop it, they can be charged with criminal actions, including hefty fines and even jail time.

As we learned in the Salmonella outbreak of 2008, intentionally selling faulting or harmful products can result in jail time for the workers and owners, loses to the company, and death to the consumers.

In addition, the court does not take cases like these lightly. In this situation, the owner of the liable Peanut Corporation was sentenced 28 years in prison. Product liability insurance certainly would not have done them any good seeing, as this was a criminal act. Now, if this outbreak had been completely accidental, that is when product liability insurance would have come into play.

By committing criminal acts and purposefully selling contaminated products, companies can find themselves in a great deal of trouble.

However, accidents do happen and having product liability insurance is key to protecting yourself from these unforeseen circumstances.

Tips to Avoid Having to Use Your Product Liability Insurance Policy

Even when you have product liability insurance, you do not want to find yourself in a situation where you need to use it. Insurance is great to have for circumstances that you can’t control, but there are a number of steps that you can take today to ensure that your product is the best product that it can possibly be.

To create an amazing product, you should make quality control a priority in your supply chain. Focus on understanding how your product is made, the conditions under which it is made, and find any potential pitfalls before bringing your product to market.

This will help you to identify any potential risks and prove your due diligence to protect your consumer from harm.

Steps to limit your product liability exposure include:

  • Understand and comply with local, state, national, and international laws that regulate your products
  • Oversee all of your employees and teach them the importance of prioritizing quality
  • Include accurate and exhaustive warning for your product so that consumers can make an informed decision on whether or not a product is for them
  • Create a quality assurance program that holds your company’s products to a high standard
  • Keep a record of all of these activities, just in case you ever need them
  • Have a strategy ready for if your company suffers from a product recall

As you can see, there are many things that are actually within your control that can be implemented today to help you ensure product safety.

Having product liability insurance is important, but putting methods in place to avoid liability exposure is perhaps even more important.

By following the steps above, you will set your business up for success in producing the highest quality product possible.

Where to Get Product Liability Insurance Coverage?

Finding the best product liability insurance can be difficult. There are numerous providers out there that all offer different packages at different rates for different industries.

Thankfully, there are easier ways to find the best product liability insurance for your business.

Our friends at SADLER specialize in quoting this type of business coverage and can help you save time and money in your hunt for the exact insurance coverage for your unique type of business risks.

They can provide you with up to 18 Product Liability Insurance quotes with only one simple application. The application is completely commitment-free and will only take a few minutes to complete.

Rather than shopping around various insurance providers and having to submit multiple requests and forms, they make it easy to get started today and help you find the best insurance by giving you all viable options with quotes from multiple providers.

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