If your company sells products to customers, the risk of these products causing damage or injury is ever present. No matter how careful you are, the possibility of products turning out to be defective or malfunctioning cannot be fully eliminated.
Without liability insurance coverage, your business could be faced with liability claims and lawsuits that negatively impact your business's bank account. This is where product liability insurance can assist.
What is Product Liability Insurance?
This is a commercial insurance coverage that helps protect a company from the financial impact of liability lawsuits filed by clients over injuries or property damage caused by a product sold. Product liability is usually a component of a standard general liability insurance policy but can also be offered as a separate policy, especially in the case of companies operating in high-risk industries.
What does Product Liability Insurance Cover?
A product liability policy covers claims related to bodily injury and property damage caused by a product sold, manufactured, or distributed by the insured company. This insurance can cover the following:
Physical Injury
A product you sell can cause physical harm to your customers due to design defects, manufacturing defects, the absence of required warnings on the label, wrong directions for use, and more.
For example, a defective remote control toy malfunctions and injures a kid who was playing with it. In this case, product liability insurance can help cover the costs if your company is found to be legally liable for the child's injuries. It can help with the defense and lawsuit settlements awarded by the court.
Damage to Customer Property
If one of the products you sell causes damage to the property of a customer, they could ask for compensation for those damages. The damage could be due to a defective product design, insufficient instructions for using the product, lack of proper warnings, and such. For example, a battery explosion could damage a customer's furniture and for which they seek reimbursement.
Illness
A customer could fall sick due to consuming an expired product you sold, or a client could have an allergic reaction because the right warning was not printed on the product's packaging. These customers could file claims for the damages caused, which you would be liable to pay from your wallet if you don't have insurance.
Wrongful Death
In rare cases, a product you sell could cause the death of a customer. Here, insurance can help cover costs related to the death, such as funeral costs, legal fees for handling lawsuits, and more.
Risks Not Covered by Product Liability Insurance
A product liability policy does not cover the following risks and costs:
Employee Injuries
If an employee gets injured on the job, this insurance does not cover the costs of medical expenses and lost wages for the injured worker. These expenses are covered by a worker's compensation policy.
Customer Injuries Not Caused by Products
Customer injuries caused by reasons other than your company's products may not be covered under product insurance. For example, a customer slips and injures themselves in your store and files a claim for the damage. Such costs can be covered under the premises liability included in the general liability policy.
Product Recalls
If you need to recall a defective product, the cost is not covered under a product liability or a general liability policy. You must obtain a separate product recall insurance policy to get this coverage.
Claims Related to Technology Products
Technology products such as software are not covered under this insurance because it focuses on physical bodily harm and property damage. Expenses for lawsuits related to technology-related product malfunction may be covered by a professional liability policy.
Companies That Benefit from Product Liability Insurance
Any firm that manufactures, distributes, or sells products needs product liability insurance.
Manufacturers
Manufacturers must have product liability coverage because they face the risk of selling products with manufacturing defects or faulty designs. They actually face a higher risk in this area than other types of businesses since they manufactured the product.
Wholesalers and Retailers
Even though wholesale and retail sellers are not directly responsible for product defects, they could still be named in a lawsuit if a product they sell injures someone or damages another's property, as they are still part of the supply chain. This is especially true in the case of sensitive products such as cosmetics and medicines.
Restaurants
Restaurants can benefit from purchasing product liability coverage as they face a high risk of causing their customers to become ill with the food they serve. Customers could get food poisoning or have allergic reactions to their food. This could lead to legal expenses, third-party claims, and high settlement costs.
Cosmetic Retailers and Salons
Cosmetic makeup stores and salons can benefit from this coverage because their products touch the body and could cause allergic reactions in customers. For example, a customer's skin could react adversely to a particular hair dye a salon's beautician uses. They could file a claim or lawsuit for their injury.
Costs of a Product Liability Insurance Policy
The costs of coverage can vary between companies depending on the following:
- Policy limits and deductibles
- Revenue size
- History of claims
- Industry to which the company belongs
- Location of the business
Protect Your Company Today
A small business can suffer tremendously due to legal battles and claims for the products it sells. These can lead to large and unexpected expenses that can lessen your profits.
Commercial insurance coverage such as product liability insurance can shield small business owners. Explore various insurance policies for various types of businesses at InsuranceAdvisor.com. We provide helpful guides, tips, and business insights to help you make informed decisions.
If you need further help, we have a team of licensed agents ready to assist you. With Insurance Advisor, you can enjoy:
- Wide variety of coverages
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