How Does Product Liability Insurance Protect Your Business?
Smart and cautious business owners know how to manage risks in advance. This includes having business insurance with liability coverage to help protect their companies when an accident or business-related mistake harms a third party. Choosing the right type of liability policy is not always easy. It may take a little research on your part.
Product liability insurance is a form of insurance coverage that protects your business from liability for claims related to the sale, installation, use, and misuse of products.
Extensive product liability insurance will cover both the manufacturer of the product and the seller of the product, be it a distributor, or a store, for injuries and damages resulting from the use of such product.
It is a useful tool to protect financial interests in the event that something goes wrong with your product, or in the event that a customer misuses the product, causing damage.
Manufacturing Defects
Liability insurance for defective products offers coverage to both the manufacturer of the product, and the seller of the same, in case there is an inherent defect in the product. This insurance will cover you whether the defect is something small, such as an oversight on the production line, or if it is something large, such as a significant failure in production.
Failures or Defects in Product Design
Extensive product liability insurance coverage will also protect you, both as a manufacturer or as a seller of the product, if there is any flaw in the design of the product. For example, “Product A” goes into production, and after several months of sale it becomes obvious that due to a flaw in the design of the product, some people have been injured. This type of insurance offers you coverage against possible claims as a result of this.
Defective or Missing Instructions or Warnings
If the product contains incorrect, insufficient, or misleading instructions and/or warnings for use, the product liability insurance will cover you against claims made for damage caused.
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The Consumer
Most consumers purchase products and services with the desire of enjoying their purchase and expecting the business to have provided good products and services. Unless notified by the business, the consumer is not expecting a defective product, which may cause harm to them. For that reason business owners have to be protected with product liability insurance. In the same breath, business owners should have safe business practices.
Types of Defects
Products go through various processes including design, manufacturing, and marketing. There are different types of defects to consider when seeking liability insurance.
Manufacturing
These kinds of defects happen while the product is on the assembly line and during the manufacturing process. It is important for businesses to have a quality assurance department to check the products that come through the manufacturing process to ensure their safety. This is not always the case and that is why all businesses should have coverage with product liability insurance.
Design
Products can be designed with defects, which may go unnoticed. The designer is the one responsible for creating products that are safe. However, errors can occur through the process of designing a product. In this case, liability insurance protects the business from lawsuit.
Marketing
When a product is created, it should come with a specific label and instructions including warnings about using the product under certain conditions. If this is missing or there is any product misrepresentation, there is an opening for a liability lawsuit. This is where product liability insurance comes in; especially, if the warning was missing and the consumer was injured as a result.
Potentially Unsafe Products
Consumers can be injured by all types of dangerous products including:
Toys and furniture for children
Medical devices and implants
Construction tools and machinery
Car and truck parts
Medicines
Consumer goods
Secondary Liability or Accidental Injury
If any damage or incident occurs, this insurance will cover you from liability, even if there is no direct connection to the product defect, and also if the damage is related to the product in any way. Note that this type of insurance covers only damages and bodily injuries. It does not cover damage or destruction of personal material property.
Frequently Asked Questions
Answer these questions to help you determine the type of product liability insurance that is best for your business:
1. Could someone get hurt while negotiating with your company?
Almost all companies can answer yes to this question, but many underestimate their exposure to this type of risk. One or more in three companies have faced a lawsuit, and 73 percent of these companies said their business was affected as a result of the lawsuit, according to a report from the US Chamber of Commerce.
2. What kind of damage could your products or services offered cause to the consumer?
It's easy to imagine that in a cafe or restaurant you need to protect yourself from slipping on wet floors, but not getting your tongue burned by coffee or being poisoned by something in the food you may be allergic to. Even companies with fewer physical risks can benefit from liability coverage through one or more of these policies:
General Civil Liability
Protects companies from claims related to injury and property damage of others. If you or an employee of yours accidentally injures or destroys someone's belongings while working for you, this coverage protects you against potential lawsuits related to that fact. Depending on your business, this may be the only type of insurance you need. General civil liability can be injury caused by anything and so product liability insurance should also be intertwined in this.
Civil Liability on Products
This type of insurance protects against damages that a product or service could cause. Wholesale manufacturing and distribution and retail companies can benefit from this type of coverage as they are responsible for product safety.
Professional Civil Liability
This is also called Errors and Omissions Insurance. These policies cover unintentional errors made by companies that provide certain services. They may be appropriate for companies that provide consulting services in the area of design, software developers and marketing companies.
Civil Liability for Directors and Officers
This policy helps protect company directors and officers from lawsuits who claim they ran the business irresponsibly.
The Small Business Association (SBA) website offers tips for choosing the right coverage for your business. You can check them out when you have time.
3. Do any of your contracts require liability coverage?
Some landlords, government agencies, and large corporations require their tenants and vendors to have liability coverage. This is usually spelled out in a contract that includes the amount and specific type of coverage deemed necessary. Additionally, financial lenders and investors may require you to carry liability, business interruption, and other types of insurance to help protect your investments, which are also considered financial and intangible products.
Different Kinds of Businesses
Almost any business can benefit from commercial liability insurance, but it is particularly useful for some specific types of businesses.
Contractors
Contractors working on a variety of construction projects need this type of insurance because the unique nature of their work puts them at high risk for liability claims. Many clients don't even hire contractors without general liability insurance because they want to make sure they can be compensated if the contractors accidentally damage their property or equipment.
Sales Locations
Anyone running a retail business has inventory that is sold to the public. For that reason, they need both product liability insurance and general liability insurance to protect them against claims about defective, harmful, or incorrectly advertised products that they may sell. However, general liability insurance is even more important for retail stores where the public can enter the stores. For example, you can protect the business owner from a claim, if a customer is injured on the site.
Repair Shops
Any business that regularly handles customer property or product should have liability insurance in the event that something goes wrong and a customer's property is lost or damaged while in business. Stores that regularly receive customers' phones, musical instruments, or tools for repair will need insurance to cover all the items entrusted to them each day.
Gardening and Home Cleaning Services
Since people in these types of businesses are constantly visiting clients' homes, they need liability insurance to protect them in the event that the house or lawn is damaged. Liability insurance can also help if someone is injured while coming into contact with dangerous chemicals, products or tools that these companies use.
Restaurants
Since restaurants have the important job of handling customers' food, they must be prepared for potential liability claims related to personal injury issues. General liability insurance has the ability to protect business owners from claims others make about bodily injury, so it can be used to cover problems like people getting sick after meals, getting injured in their kitchens, or they slip on wet floors. The same is true, if the patrons that visit the restaurant are susceptible to food poisoning. The food is a product of the restaurant and that is why product liability insurance is also essential for restaurant owners.
Small Business Owners Operating From Home
Most homeowner’s insurance policies will not cover claims arising out of the course of business. Therefore, people who operate businesses out of their homes, from jewelry makers to daycare providers, must obtain Product Liability Insurance as well as general liability insurance. In addition to protecting against personal injury claims, this type of policy can also protect against claims due to advertising, product defects or social media errors, which can be very common when small business owners start out for the first time.
Does your state require any type of coverage?
Some states require certain professionals, such as doctors, to carry liability insurance. Additionally, your state may require you to have workers' compensation coverage with employer liability protection. Because states regulate their own insurance laws, each has its own administration and regulations. Therefore, it is up to you to find out if your state requires product liability insurance. Even if they don’t, it is best to acquire it; especially, if you are doing business on a national platform.
Could your business be affected by high legal fees?
Legal fees can quickly add up when a business is sued, regardless of whether the case has any merit. Companies can expect to pay between $50 and $1,000 or more for each hour of legal service. If the lawsuit is successful, subsequent lawsuits can result in more expenses, and if the company is not protected may be forced to close. Liability insurance helps you protect your business against these inconveniences. Make sure you have the right liability insurance for your business.
Some risks in your company can be identified; others are not so obvious and can affect your assets, especially when third parties are involved. If unforeseen events get out of control, product liability insurance is important for your peace of mind.
Conclusion
Once the consumer is injured by a product that was supposed to be safe, the priority should be getting medical attention. In most cases, the consumer will file a claim using the expertise of a product liability attorney who will explain the options for obtaining justice under the law.
As a business, you should have your own expert attorney to help you fight the lawsuit in the most professional and authentic way. You can choose to learn more about various insurance products at the Goalry online platform where “Insurry” is the ideal option to do your initial search.