Product Liability Insurance

If you are a small business owner who provides products to the consuming public, then your company needs to be protected through product liability coverage. Product liability insurance coverage protects your business from claims related to the sale or manufacture of products, including food and medicines, to the public.

What it Covers

Product liability insurance covers seller’s (or manufacturer’s) liability for injuries or losses to a user, buyer, or even bystander, that was caused by a malfunction or defect in the product, a design defect, or a failure to warn. Product liability insurance is part of a general liability policy.

Types of Claims

When it comes to “product” claims, there are three common types that a small business owner may face: defective instructions or warnings, production or manufacturing flaws, and design defect.

  • Defective Instructions or Warning. This claim arises when a product had insufficient warnings or not properly labeled for the buyer to understand the risks of using the product. An example here is the product liability suit filed in 1994 against McDonald’s restaurant in which a woman suffered serious burns from a hot coffee.
  • Production or Manufacturing Flaws. This claim arises when part of the manufacturing or production process causes an unsafe defect in the product that is considered unreasonable.
  • Design Defect. If the design of a product is intrinsically unsafe, a design defect claim may be filed. An example here is the design defect of the 1970’s Ford Pinto.

What it Covers

Product liability claims include damages awarded for compensatory damages, medical costs, and economic damages. In some cases, lawyer costs, fees, and punitive damages may be covered.

Why It Is Needed

Claims arising from product liability can and do put some businesses out of operation — when resellers or retailers fail to purchase product liability coverage. Many retailers and resellers believe that they are not subject to product liability exposure if they didn’t manufacture the product. However, that is not always the case, as consumers bring retailers and wholesalers into the litigation claim for alleged negligence to the consumer.

What’s more, many states abide by the “stream of commerce” liability model. In other words, if your business was part of the equation in placing the product into the consumer’s hands, then your company can be held liable for damages awarded to the end consumer.