What is Product Liability Insurance and Does My Business Need it?

What is product liability insurance

Two Theories of Liability the Business Owner Needs to Understand

You had a great idea for a product, so you developed a plan, designed your prototype, made your pitches, secured your funding, and now you're well on the way to realizing your dream. The last thing you need is a lawsuit to become an obstacle on your path to success. That's why you purchased business insurance, or specifically, product liability insurance.

As a business owner, as important as you need to secure a profit for yourself and investors, or you need to provide a safe working environment for your employees, is your ability to understand your liability for the products and services you provide, and how that responsibility is defined by law.

Each state and municipality will have different laws relating to general liability or product liability, but two legal theories apply universally from jurisdiction-to-jurisdiction. These principles, as they apply to defective products or services are negligence and strict liability.

These are really the two reasons you purchased your product liability insurance.

Before we go too far, this is the part of the post where we remind you these are complex legal theories, and if you have questions about your liability, you should consult a lawyer. This post is only provided to provide an introduction to these theories; to help the business owner familiarize themselves to the product liability concepts that may result in an insurance claim or the product liability insurance they've purchased.

Now, let's get back to the discussion, and the differences between negligence and strict liability. The former has to do with the conduct of the manufacturer or seller, while the latter is more focused on the product itself.

Product Liability Insurance

What is Negligence?

As we said, negligence in product liability is generally focused on the conduct of the seller or manufacturer of a product. In the event of a claim for negligence, the harmed party may allege a failure on the part of the business owner to use reasonable care when manufacturing or selling a product.

Example: A consumer purchases a ladder and while using the ladder one of the legs buckles and the consumer falls and injures themselves. The consumer may present a claim that the ladder manufacturer didn't use reasonable care in the inspection, quality control, or in the engineering of the ladder that resulted in the damages. Alternatively, if the seller was responsible for disclosures, or assembly, they could be found negligent if it's proved that  seller failed to notify or provide reasonable care in the assembly.

As a defense to a negligence claim, the manufacturer or product seller may argue that the injured consumer failed to use the product with reasonable care. For example, a manufacturer or product seller may argue that the injured consumer failed to read and follow clear instructions. In the event of a lawsuit, the conduct of all parties is typically considered in the context of a negligence claim.

What is Strict Liability?

While negligence is about the manufacturer or seller of a product, strict liability shifts the focus to the product itself. Under strict liability, one is attempting to uncover whether the a product is defective, regardless of the degree of care exercised by the manufacturer or product seller.

So, what constitutes a “defective” product under this theory of strict liability? This question doesn't have a simple answer, it may vary greatly between various states and countries, but generally, it requires a showing that the product presents a substantial likelihood of harm to consumers due to one or more of the following:

  • Design defect – a product may be found to be defective when the design does not include a necessary and feasible safety feature.
  • Manufacturing defect – a product may be found to be defective when it is not manufactured in compliance with the design.
  • Warnings and instructions defect – a product may be found to be defective when its communications (instructions, warnings, manuals, labels) accompanying or affixed to it are inadequate, inappropriate, misleading or confusing.

Conclusion

Understanding the legal theories of liability can help you understand the risks your business may face. We recommend you look at your entire product life cycle in a holistic manner to better understand your product liability insurance exposures and identify opportunities to better protect your business, brand and reputation.

We work with businesses of all types and sizes every day, and our experience can help you work with your risk management team to construct a program that fits the unique needs of your business.

Image provided by John Foust

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IronPoint Insurance Services is an independent insurance agency licensed (#0G87821) with the California Department of Insurance. We are authorized agents for many A+ rated Arizona, California and Utah insurance companies. We provide consumers with online, phone, and in-person insurance services through our insurance company relationships. IronPoint Insurance Services, LLC offers multiple insurance quotes to provide consumers several options for their insurance products. We offer auto insurance through Mercury Insurance Group, Travelers Insurance Companies, The Hartford, MetLife Auto & Home, and Progressive Drive Insurance. We are authorized insurance agents for these companies and do not charge any fees for our services. If an IronPoint insurance agent trys to charge you broker or agency service fees for representing these companies, please contact us immediately.

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