Product Liability Insurance

Who Is It For?

If you are manufacturing products, you should consider Product liability insurance. Manufacturers are more frequently the party held liable in product liability claims. 

If your company repairs damaged products, you should consider product liability insurance as well, because there is always a chance that the injury or damage caused by the product could have been related to something that occurred as a result of your business repairing or customizing the product.

Finally, many sellers are surprised to learn that they are also liable to claims. While many states limit a seller’s liability, the claims can get complex with many parties citing blame on each other.

As such, many businesses dealing with product manufacturing, distribution, sale, or repair will not work with other companies that do not carry adequate product liability insurance. Therefore, purchasing adequate product liability insurance will likely be required at some point by your customers or partners.

Does your business fall into any of the categories above? Get started by signing up to Embroker’s risk-free platform, and receive your product liability insurance quote in just a few minutes.

Why Do Businesses Need Product Liability Insurance?

Simply put, businesses need to protect themselves from the greater risks. For even the most diligent manufacturers, product liability claims happen. Product liability insurance covers product-related claims of product defects, product failures, and product-related personal injury.

Product liability insurance is an essential element of doing business. It protects you from lawsuits resulting from product defects, product failures, and product-related personal injury. It’s required by law in most states (or can be purchased to give your company that added layer of legal protection), but it should be viewed as valuable coverage that provides additional protection and peace of mind.

Why product liability insurance is necessary:

1. You depend on your product to make a profit, and you can’t afford product liability claims that could wipe out your company’s profits—or worse, put you out of business altogether. Product liability insurance provides the funds needed to successfully resolve product-related lawsuits so you can stay in business.
2. Product liability insurance increases product sales revenue by minimizing product-related legal expenses. If you’re worried about product defects harming consumers, product recall costs, or product safety issues that could lead to product failures and product liability claims, then fear is a powerful deterrent for potential customers. When consumers feel confident buying your products, product sales revenue increases.
3. Product liability insurance is designed to provide product manufacturers, product distributors, product retailers, and product advertisers with protection against claims resulting from personal injury or property damage allegedly caused by their products or product advertising. Product liability insurance also covers product-related claims of false advertising, express warranty, implied warranties, and service contracts.
4. Product liability insurance provides product manufacturers, product distributors, product retailers, and product advertisers with liability coverage up to the policy limits. Product-related personal injury claims include product defects in design, manufacturing, labeling, or warning. They also include product failures that result in bodily injury or property damage caused by an undetected product defect which is responsible for the product failure.

According to the United States Consumer Product Safety Commission:

• There were an estimated 240,000 toy-related injuries treated in U.S. hospital emergency departments in 2016.
• There were an estimated 144 unintentional non-fire CO poisoning deaths associated with consumer products in 2013.
• There was an estimated annual average of 28,300 emergency department-treated injuries as a result of television, furniture, and appliance product instability or tip-over incidents in 2018.

What Does Product Liability Insurance Cover?

Typically, product liability claims arise from design defects, manufacturing defects, warning or use defects, and strict liability.

• Design defects are claims related to the product issues that were present even before it was made.
• Manufacturing defects are claims related to problems that occurred while the product was being created or assembled.
• Warning or use defects are claims that the seller failed to provide adequate labels or warnings on risks and proper use.
• Strict liability is a claim that is based on the absence of negligence but where injury or damage resulted from proper use.

In short, a good product liability insurance policy will cover you in the case of the following:

Injury: For example, a forklift made by your company malfunctions, which results in the injury of a worker. Your policy will pay for legal fees and any settlements related to the claim.

Property Damage: For example, a remote control your company sells malfunctions. Its battery explodes and burns a hole in the customer’s carpet. Your product liability policy covers legal fees and settlements in such a case as well.

Illness: For example, you own a grocery store that sold someone cheese that was expired, which caused the person to become ill after eating it. Product liability protects you from these types of claims too.

Wrongful Death: To use the first example again, say your company sells a forklift that malfunctions, which leads to an accident that ends in death. In such a case, your product liability insurance can cover not just legal costs, but also burial costs and other expenses related to the death caused by your faulty product.

What’s Not Covered?

Product liability insurance does not cover the following:

Employee Injuries: If an employee is injured by a product defect, your product liability insurance wouldn’t cover the costs of the injury. This is why businesses buy workers compensation insurance, which pays all costs related to employee injuries and recovery.

Third-Party Accidents: As we already mentioned, if a customer or partner is injured on your property, that is something that would be covered by a general liability insurance policy, not by product liability insurance.

Product Recall Costs: A separate insurance product called product recall insurance covers the costs of recalling a defective product. This is often added as an endorsement to a product liability policy but is rarely included in one without the endorsement.

Technology Products: Product insurance will not cover lawsuits related to technology products. A technology error & omissions policy is what software companies and other technology companies purchase to protect themselves from claims related to mistakes made when creating software products that caused ended up causing damage to third parties.

How Much Does Product Liability Insurance Cost?

Many factors can impact how much you spend on product liability insurance coverage. Drug companies and other businesses that manufacture medical and pharmaceutical products tend to be in the high-risk bracket and will pay considerably more for liability coverage. Products that are more likely to result in the injury of the user, such as guns or motorcycles, will also have greater liability risks and therefore face higher insurance rates.

Beyond your industry and the products you sell, the size of your company is a factor both in terms of how many employees you have, and your revenue. If your business is a huge, well-known corporation, you are going to be a bigger target for litigation than you would be as a small mom-and-pop retailer.

Your claims history will also come into play. If your company has a long history of making great products and avoiding lawsuits, your rates will likely be lower than a new company without proven manufacturing success. For more factors, read our entire article on product liability insurance cost.

Tips for Saving on Product Liability Insurance

There are several things that companies can do to decrease their product liability premiums. The most important and obvious one is good risk management.

The fewer claims you see, the less you’ll pay for coverage and vice versa. Companies who make, sell, and distribute products need to be vigilant about ensuring the quality of their products. They need to implement testing protocols and perform very strict quality control in order to make sure that their products are not defective.

Of course, employee training is also very important in this process, since the quality of their work is often a deciding factor in the quality of your products. Also, if you are working with partners who manufacture, distribute, or sell your product, make sure that you are working with trusted companies that are also well insured.

Most companies will be able to simply add a product liability endorsement to their general liability policy since only larger companies truly have a need to purchase an independent product liability policy to cover very specific coverage needs.

Since it is usually bought with a general liability policy, another good way of saving on this coverage is by bundling the general liability policy and purchasing it as part of a business owners policy (BOP).