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Does Your Business Need Product Liability Insurance?

In the United States, defective or dangerous products cause millions of injuries each year and result in tens of thousands of lawsuits annually. From a multinational chain that distributes automobile and truck parts to a small company that sells inflatable toys, no business is immune. What’s more, most commercial general liability insurance policies do not provide coverage for these types of claims. That’s why product liability insurance is a must for any business that is part of the consumer-products supply chain.

Product Liability Insurance Photo

Product Liability Insurance Photo

What Is Product Liability?

“Product liability” is the area of civil law that refers to the legal responsibility assigned to the manufacturer or seller of a defective product. In a product liability lawsuit, any business in the product’s supply chain may be held liable for damages, including:

  • The product manufacturer
  • The manufacturer of component parts of the product
  • The company that assembles or installs the product
  • The wholesaler or distributor of the product
  • The retail store that sold the product to the consumer

Product liability statutes are enacted at the state level. Nevertheless, state laws are based on the tenet that any product sold in the U.S. must meet the “ordinary expectations of the consumer.” If a product contains a defect, the law generally assumes this responsibility has not been met.

Types of Product Liability Claims

In the United States, there are three major types of product liability claims: design defect, manufacturing defect and failure to warn.

  • Design defects occur when the design of the product renders it dangerous or useless. A design defect exists when the plaintiff can prove that there is hypothetical alternative that would be safer than the original, as economically feasible as the original and as practical as the original, yet would still retain the primary purpose of the original design.
  • Manufacturing defects are unintended defects that occur when a product departs from the intended design and is, as a result, more dangerous than a consumer would reasonably expect it to be.
  • Failure to warn occurs when a product is inherently dangerous but is not properly marked with warning labels or instructions for care. For example, propane is extremely combustible, so a propane grill should have clear, concise, instructions and a detailed explanation of all the risks associated with its use.

Other product liability issues are interpreted according to the legal concept known as breach of warranty. These types of claims are further broken down into breaches of:

  • Express warranty: This is typically a manufacturer’s statement, such as a warranty that a product will last a certain amount of time (e.g. a mattress that comes with a 25-year warranty.)
  • Implied warranty: An implied warranty is defined by the nature of the product and the consumer’s right to expect that it will perform. For example, a consumer who buys a new bicycle has a right to expect that the pedals will not fall off. An exception to this is any product that is sold “as is.”
  • Implied warranty of fitness: When a merchant supplies a product to a consumer, he implies that the product is fit for a specific purpose. For example, an all-terrain vehicle that gets stuck in the mud the first time it’s used is not fit for the purpose for which it was sold. Merchants can add language to a contract that specifically removes any implied warranty of fitness.
  • Implied warranty of habitability: In real estate rentals, there is an implied warranty that the premises rented will be fit for human habitation. If a realtor rents an apartment that is infested mold, for example, he has breached an implied warranty of habitability.

Strict Products Liability

Strict product liability is a concept in the law that states that a manufacturer, distributor or seller of a product can be held liable for damages even if there was no negligence involved.  In other words, if a product is defective, the plaintiff does not need to prove that any entity is at fault; it is enough to prove that a defect or danger existed and that it caused harm. However, a business may not be legally liable for damages if:

  • The plaintiff used the product in a way that he or she knew could lead to injury or used the product despite knowing of the defect.
  • Acted carelessly or used the product improperly, causing harm
  • Some other person or event interfered with the use of the product to the extent that the product caused injury.

Consumer Protection Laws and Product Liability

In addition to product liability laws, many states have enacted consumer protection laws that provide consumers with legal remedies in cases where a business acts in a manner that is deceptive or unfair. These include violations as seemingly minor as failing to provide a raincheck for an advertised item to claims that an item is “on sale” when it is usually sold for a similar price. “Lemon Laws” that protect new car buyers fall under this category as well.

Products liability laws are complex and difficult to understand. That’s why it’s important that you discuss your business insurance needs with an expert now — before you are faced with a lawsuit or a consumer complaint. Let us help you design an insurance package that meets your needs. Call our office at 516-292-3780 to schedule an appointment or request a free 30-minute consultation online now.


Source: Cornell University Law School, Legal Information Institute



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