Your business needs product liability insurance, but what is it? The term covers a wide range of risks and coverage options.
Here is an overview of this type of insurance, explaining the key terms you need to know when talking to your agent.
Product liability insurance
This is coverage that safeguards your business from any claim related to the sale or manufacture of products, medicines, foods or any good that is sold to the public.
A policy covers the seller’s or the manufacturer’s liability for injury or loss that happens to a customer, user or bystander. The problem can be a defect in the product, some type of malfunction, poor design or a failure to warn.
It also covers liability for work after the job is completed by a contractor. This is sometimes called Completed Operations Cover.
These are problems that occur during the production of the item. The problem is usually due to poor quality materials or poor workmanship.
If the conception of the product is defective, the product ends up dangerous or useless. The test is if it doesn’t meet ordinary consumer expectations for safety and usefulness, or if the risk in using the goods is greater than any benefits that result in using it.
Failure to warn
This refers to defects that aren’t obvious with standard inspection of a product. If the purchaser had been warned, he could take steps to protect himself, but he wasn’t. The warning can be in the form of a large label or an easily spotted disclaimer.
It doesn’t matter how well the product was made or designed, the hazard still exists. This situation is also called Defective or Insufficient Warning.
Manufacturing vs design flaw
The difference between the two depends on when the defect became part of the product. If the item was manufactured correctly according to the design specifications, but the product is faulty, the flaw is in the design.
If the item was made badly, then it is a manufacturing flaw. For example, a recipe is created that is healthy and harmless. However, those making the food handle it incorrectly. The result is that people eating it get sick. In this case, it is a manufacturing flaw.
Stream of commerce
This means that anywhere you are situated in the spectrum of design through purchase, you are part of the liability situation. If you created it, were a supplier of materials, transported the product or sold it, you are potentially liable.
Aggregate products liability limit
This is the maximum that your policy will pay if you are sued.
Many product liability policies are part of bigger general liability coverage. This type also includes premises and operations insurance which comes into play during lawsuits due to injury on the company’s property.
Contact us at Bolt Insurance Agency at 1-800-216-4171 to learn more about product liability insurance.