If you sell, supply or deliver some goods or services, you need Product Liability Insurance. This coverage will protect you against claims resulting from a personal injury or damage to property caused by your product or services to another person or business.
Product Liability Insurance covers the business from claims related to the manufacture or sale of products, food, medicines or other goods to the public. Product Liability Insurance makes a special area of law (Consumer Protection Act 1987), according to which manufacturers, as well as distributors, suppliers, retailers, and other people who make products available to the public, are held liable in case their products are not "fit for purpose" and their use, misuse, or handling cause bodily injury or illness to a third party, or loss or damage to the third party's property. Mind that Products Liability claims may arise not only from defects in manufacturing, design, labeling, or warranties and packaging, but also from the storage, transportation or handling of your products. Even the deliberate misuse of a product can cause Product Liability claims in some jurisdictions.
Not only manufacturers, producers of the product or anyone who puts their name or mark on the product, have a legal responsibility for any damage or injury a product may cause. Anyone who repairs or reconditions supplies or imports the product is also exposed to the risk of product liability claims in case of failure of their product. Resellers, wholesalers, and retailers may think that since they did not "manufacture" anything, the Product Liability coverage is not needed. However they are often sued for alleged negligence by consumers.
You will also need Product Liability Insurance if your business' name is on the product; your business repairs, or changes the product; or in case you cannot identify the manufacturer or the manufacturer has gone out of business.
Product Liability laws can vary from state to state, since they are determined at the state level. The claims most commonly associated with Product Liability in the United States are negligence, strict liability, breach of warranty, and consumer protection claims. A model of liability called "stream of commerce" works in most states, which means that if your company takes some part in placing the product into the "stream of commerce," it can automatically be held liable for possible damages to the end user.
Product Liability Insurance may be called Products-completed Operations Insurance and be a part of Commercial General Liability policy. Some form of this coverage can be present in the standard Commercial General Liability or Business Owners' policy. However there is a major difference between being covered in case someone was injured on your premises and being protected in case a customer was injured by a product he/she purchased from you. More often than not, your business will need a separate Product Liability coverage.
It is crucial to understand the potential liability in order to determine the importance of Product Liability Insurance for you. Basically, there are three types of products "claims" a business may face:
1. Manufacturing or Production Flaws, when consumers claim that due to some part of the production process, the product has an unsafe defect.
2. Design Defect, when consumers find the design of the product unsafe.
3. Defective Warnings or Instructions, when the product is claimed not properly labeled or lacking adequate warnings for consumers to realize the risk.
Product Liability claims can be serious enough to ruin one's business. The types of claims mentioned above are associated with medical costs, economic damages, compensatory damages, attorneys' fees, and punitive damages.
In case you are not the manufacturer of the product, you may have to prove that the products were faulty when supplied to you. It is a requirement to show that you gave consumers necessary safety instructions as well as warnings about the product misuse. You also must prove that you included terms for return of faulty goods to the manufacturer in a sales contract you provided the consumer with. Having proper quality control and record-keeping systems is essential as well.
The rates on Product Liability policies are based on the type of product, volume of sales, and the role of the insured in the process. Don't try to underreport or insure less than the actual amount of sales in order to lower the premiums since there are substantial underinsurance penalties which can be applied in this case.
Make sure that your policy coverage amounts are sufficient to protect you if some serious injury is involved. A million dollars of coverage is considered about the minimum. It is a mistake to think that you cannot be sued if you are insured. Note that even in cases where the retailer is released from a suit, the legal process can be very lengthy and costly and you need the policy which covers these expenses.