It’s a fact of life: accidents happen.
Of course, there will always be risks associated with creating, manufacturing, assembling, distributing or selling products, but managing those risks is a key part of your business success. Product liability insurance can protect your business from potential legal and financial consequences that may arise from product-related claims.
Product Liability Insurance In a Nutshell
Product liability insurance is a specialized form of coverage designed to protect your business from covered legal claims and financial losses resulting from defective products—or even from their misuse.
For covered claims, coverage can include the business’s legal defense costs, settlements and judgments in cases where a product causes bodily injury or property damage. Without such coverage, you could wind up writing checks for not only property or medical costs, but also legal fees if one of your product’s consumers sues you.
For example, if your business manufactures automatic garage door openers and a defect in the design of the product caused it to fail, that customer could sue you for the costs of damage done to their vehicle or a broken bone they might have suffered as a result of the opener failure.
Product liability insurance is an important protection for any business that creates, manufactures, distributes or sells products. These types of businesses might include:
- Retailers
- Distributors
- Manufacturers of entire products or component parts of a product
- Assemblers
- Online sellers (Amazon actually requires it for larger merchants.)
What’s Covered and What’s Not
Product liability insurance may provide coverage for a range of scenarios in which a business is potentially held legally liable for losses or injuries suffered by a consumer. These can include:
- Design defects. A product is inherently dangerous due to a design flaw.
- Manufacturing defects. A product becomes dangerous due to an error in the manufacturing or assembly process.
- Marketing defects. A product is marketed or advertised in a way that misleads or fails to warn consumers of potential risks.
- Strict liability. A business is liable for a product defect, regardless of fault or negligence.
- Improper warning or instructions. The risks of using a product—whether correctly or incorrectly—are not made sufficiently clear to the consumer.Although product liability insurance may provide essential protection against scenarios like those above, it does not cover every possible risk. Exclusions are relate to scenarios for which a business could purchase another type of insurance to provide such coverage, for instance:
- Workers’ compensation insurance. This type of policy provides protection for covered employee injuries.
- Product withdrawal coverage. This coverage provides protection for the costs of recalling a problematic product for covered claims.
- Manufacturer’s Errors & Omissions Coverage. Commonly referred to as professional liability, this coverage provides protection if the work you perform was done incorrectly.
- Technology or cyber liability insurance. This type of insurance provides protection for covered incidents involving faulty software, hardware or infrastructure related to information technology.
Choosing the Right Coverage
When selecting your product liability coverage, keep the following in mind:
- Know your territory. Ensure your policy covers claims made in the countries where your products are sold.
- Know your limits. Evaluate your business’s risk exposure and potential liability to determine the appropriate coverage limit.
- Know your insurer. Make sure you’re dealing with an insurance agent who understands your business and who is well-versed in all the types of coverage your business may need.
Depending on the type of products you offer, your potential risk exposure, and the size of your business, you may require up to several million dollars in product liability coverage. Working with a knowledgeable agent is a great start to protecting your business, so talk to a local ERIE agent today, and we’ll help you get the coverage your business needs.
