Product Liability Insurance

Product Liability Insurance provides financial protection when small businesses are sued over injuries caused by a product or service they sell. This coverage is typically included as part of a small-business owner’s General Liability Insurance and tends to be most useful to manufacturers, distributors, retailers, and restaurant owners.

Product Liability Insurance for Small Business

Product liability lawsuits often make headlines. We’ve all read about a cup of drive-through coffee burning a customer’s lap and heard of defective accelerator pedals sending cars out of control. But it can be hard to see how these stories are relevant to small business.

But even small businesses have product liability risks. Whether you’re a manufacturer, supplier, or retailer, a defect in your product could lead to…

• Damaged property.
• Bodily injury.
• Illness.

And these problems come with big legal bills. A customer lawsuit could easily cost hundreds of thousands of dollars, if not more. The following sections examine how Product Liability Insurance protects small businesses and what types of product liability risks small-business owners may be exposed to.

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What Is Product Liability Insurance?

Product Liability Insurance is a commercial policy that helps cover the costs associated with damages, illness, or injuries caused by a product or service a business sells.

Here’s an example. Let’s say you run a furniture manufacturing business. You make chairs for restaurants and cafes, so it’s crucial that your product withstand a lot of wear and tear.

Unfortunately, your supplier doesn’t warn you when it switches the source for the metal in its bolts. The screws that hold your chairs together are now being made with weaker metal. A customer’s chair breaks, leading them to suffer an injury and sue you.

In the event of a lawsuit like this, Product Liability Insurance can pay for…

• Lawyers to defend your business.
• Medical damages you owe someone injured by your product.
• A settlement, if it makes sense to resolve the lawsuit out of court.
• Financial damages the judge rules you owe the plaintiff, if the case goes to trial and you lose.

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What Does Product Liability Insurance Cover?

Product Liability Insurance covers “completed products hazards,” which are the financial losses associated damage caused a product or service your business sells. Here’s a breakdown of what is and isn’t included in a typical policy.

Product Liability Insurance CAN cover…

• Product injury lawsuits.
• Illnesses from toxins in products.
• Injuries suffered by bystanders.
• Food-borne illnesses.
• Wrongful death.
• Property damage caused by defective products.

It does not cover…

• Slip-and-fall injuries at your premises.
• Employee injuries.
• Product recall costs.
• Damage to your products.
• Lost inventory.
• Professional liabilities.

It’s worth pointing out that product recalls, while related to product liability, are covered under Product Recall Insurance, and not Product Liability Insurance. Product Recall Insurance can be included as a rider under a General Liability Insurance policy. Ask your agent for more details.

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Understanding Product Liability Law: What Is Strict Liability?

To determine who has liability for damage caused by a product or service, many states follow some version of the doctrine lawyers call “strict liability” or “strict product liability.”

Strict liability means that when you’re sued, the plaintiff doesn’t have to prove you were negligent to win the case. They only have to prove two things:

• Your product had a defect.
• It harmed them in some way or damaged their property.

Strict liability does not require proof of negligence.

That, to put it mildly, is a low burden of proof. These laws make it easier for injured consumers to sue whoever provided them with a defective product. Why? To protect consumers. The average consumer doesn’t have the financial resources to track down the company that produced the screws in the chair that broke while they were eating dinner — and then to sue that company.

In states that have strict liability laws on the books, consumers don’t have to do all that legwork. They can sue the party they had direct contact with (the restaurant) and let the various manufacturers and suppliers duke it out from there.

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What Is a Product Defect?

There are many kinds of product flaws — spoiled food, broken toys, inaccurate labels — but they all fit into three main categories:

• Design flaws – Errors with the design of a product that cause it to be dangerous.
• Manufacturing flaws – Errors with how a product is made or its component materials.
• Advertising flaws – Inaccurate directions or insufficient product warnings.

When you’re sued over product liability, a plaintiff’s lawyers will likely argue that your product had one of these three flaws. Remember that you don’t have to be responsible for the flaw to be sued. If you’re a manufacturer, you can be sued even if the flaw occurred somewhere in your supply chain.

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How Much Does Product Liability Insurance Cost?

Like any type of commercial insurance, the cost of a Product Liability Insurance policy depends partly on your business revenue, the products or services you sell, the size of your business, and more. Still, we can offer a ballpark of what IronPoint customers commonly pay for this coverage.

As we mentioned above, Products Liability Insurance is typically included in a General Liability Insurance policy. Costs for General Liability policies break down like this:

• The average cost of a small business General Liability Insurance policy is $576.08.
• However, manufacturers may have higher premiums because of their increased product liability exposures. Insureon’s manufacturing customers typically pay $425 to $1,030 in annual premiums.

Remember that these costs are only estimates. Because risks vary from company to company, your insurance premiums may be higher or lower than these.

For more information on the cost of Product Liability Insurance, see our General Liability Insurance Cost Report.

Let us be your insurance agent

When you buy a business insurance policy through IronPoint Insurance Services you are entitled to 24/7 claims service with our A-Rated insurance carriers.  For a free quote for product liability call us today at(877) 334-7646.