When most business owners think about liability insurance, they think about protecting their assets from a lawsuit arising from an incident that occurs either on their premises or at a job. For example, most commercial general liability policies cover third-party injuries such as slips and falls whether they happen at the business location or in a client’s home. But general liability insurance doesn’t cover every instance in which a business might be the subject of a legal claim. Businesses may also be liable if a product they manufacture (or even sell) causes damage due to faulty workmanship or a product defect. That’s where product liability insurance comes in.
What Does Product Liability Insurance Cover?
Product liability insurance protects your assets if you’re involved in the sale or distribution of a defective product that causes damage of any kind. The damage can involve physical injury, such as might occur if a faulty propane canister explodes. Or it can involve property damage: for example if a faulty machine part causes an expensive piece of equipment to break down.
Product liability insurance typically covers three kinds of defects:
- Design Defects that exist even before a product is made. In other words, some component of the product design makes it inherently unsafe.
- Manufacturing Defects that occur in the course of a product’s manufacture or assembly.
- Marketing Defects, including things such as improper labeling, incomplete instructions or insufficient safety warnings.
What Kind of Business Needs Product Liability Insurance?
Obviously, any business that’s involved in the manufacture of consumer goods is open to a product liability claim. Whether you make homemade baby clothes or custom computer parts, if your product causes damage due to one of the above kinds of defects, you can be sued.
But manufacturers aren’t the only business that consumers can take to court in a product liability claim. If you are any part of the product’s supply chain, the injured party can sue you as well. Potential defendants include the company that assembled the product; the company that installed the product (think faulty car brakes); the product wholesaler; and the product retailer.
Home based businesses, sole proprietorships, and partnerships are often particularly vulnerable in a product liability suit since they are unlikely to be shielded by the “corporate veil.” (That’s the legal concept that protects corporate shareholders from being personally liable for the company’s obligations and debts). However, if the business is incorporated the owner’s personal assets are generally safe.
How Long Does Product Liability Exposure Last?
Product liability exposure doesn’t end when you stop manufacturing or selling a product. Discontinued items that are still in use are still subject to product liability claims. For that reason, product liability insurance should remain in force as long as there’s a reasonable possibility that a consumer might be using a defective product that your company manufactured, installed or sold.
How Can I Protect Myself Against Product Liability Claims?
We live in a litigious society. So no business can completely shield itself from product liability claims. However, you can protect yourself to some extent if you remember that the basis of most product liability lawsuits is the premise that you failed to take appropriate measures to ensure that a product was safe. Therefore, taking all necessary steps to inform the consumer of the hazards inherent in using the product is the best defense against a claim. These steps may include:
- Product warning labels
- Child-proof packaging
- Written instructions for use
Additionally, if you’re a product manufacturer, keep detailed notes throughout the design process, especially those pertaining to discussions about product safety. These notes may help you defend against a claim if a customer takes you to court.
At the Carmoon Group, we specialize in business insurance of all kinds. So why not let us help you put together coverage that works for you? Give us a call today to set up an appointment for your insurance review. Or if you prefer, just reach out online and we’ll get back to you right away.