Product liability insurance protects inventors, manufactures and sellers from flaws and defects in any publicly available product. Unprotected, your business can be responsible for:
- Medical Costs
- Compensation for Damages
- Economic Damange
- Punitive Damages
- Attorneys’ Fees
These damages and fees, depending on the number of people affected, can put a business into bankruptcy. With a simple product liability insurance policy, a business can protect itself from most or all of these costs. A product liability policy covers:
- Production Flaws
- Insufficient Warnings
- Design Defects
Recently, some Chinese manufactures produced plastic children’s toys in the presence of lead. Multiple parties would be responsible for the production flaw in this product. The manufactures could be sued for producing the product in the presence of dangerous chemicals. The retail outlet or seller can be held responsible for selling a product that is not safe for the end user.
Insufficient warnings include an undesired side-effect of a product that was not properly label/explained. An example of this could include cereals produced in a plant that also processes peanuts. The cereal could physically harm individuals allergic to peanuts. The cereal may be produced from a source that does not contain any trace of peanuts, but production can add peanut residue to the cereal. Without a sufficient warning, a hyper allergenic consumer is vulnerable to the cereal and the company is responsible.
A design defect can be something as simple as a handle breaking off a hot coffee mug to an airbag failing to deploy in an accident. In both situations, the company is responsible for their product failing to perform as advertised.
Basically, if your company is involved in the production or sales for a product, then your company needs protection through liability insurance. It’s not worth the risk, one liability case can destroy a company.
Pricing for liability insurance is based on the type of product, the number of sales, the company’s role in the supply chain and the intended market for the product. Many businesses will lie about the volume of sales or where a product is produced to receive a lower premium. Remember, if an insurance company finds that you lied about a critical piece for determining a premium, they can (and probably will) charge substantial underinsurance penalties.
When making decisions about product liability insurance, your best bet is to work with a product liability insurance broker. This individual knows the questions to ask to get you a policy that protects your business but does not provide more coverage that you require.