Your customers expect you to have safe and reliable products, and failing to meet these expectations can lead to significant financial losses. If one of your products harms a customer in any way, they can sue your business - leading to costly legal fees and settlements that can easily reach six figures.
While you may be doing everything in your power to ensure your products are safe, mishaps can still happen without warning.
That’s why, to protect against claims that arise and ensure the longevity of your business, you may need to consider product liability insurance.
Product liability insurance, also referred to as products-completed operations insurance, provides excellent protection for your business relating to manufacturing or sale of products, foods, medicines or other items to the public.
Specifically, as part of your commercial general liability policy, this coverage provides protection against liabilities for losses due to injuries caused by malfunctions or defects in your products - including design defects or a failure to warn consumers about the dangers of using a product.
Let us Explain Product Liability Insurance:
Product liability insurance protects against the following claims:
Manufacturing or production flaws that cause unreasonably unsafe defects in the product. For instance, there may be traces of dangerous chemicals in your product, which could be toxic to those using it.
Design defects that make the product unsafe for use by the public.
Failure to provide adequate defect warnings or instructions for using the product. These claims arise when products are not properly labeled or had warnings that were not explanatory enough to reduce consumer risks while using the product.
Depending on the outcome of the case, money may be awarded to the party that filed the claim for compensatory loss (including medical costs, economic damages and attorney’s fees) or punitive damages (designed to deter the defendant from repeating the action that caused the damage). At times, these cases can put organizations out of business because the awarded damages are so large.
Why Should I Purchase Product Liability Insurance?
Great question! Depending on the nature of your company, you may not NEED product liability insurance.
But even if you do not physically manufacture a product, you still may be at risk for litigation. The actual manufacturer is not the only party liable for product flaws, defects and failures; retailers and wholesalers can also be found negligent.
The logic is that there is a stream of commerce that a product goes through from its inception to the hands of the consumer.
If your organization had any part in that stream, and as long as the product was defective when it left your control, you can be held liable for any problems that arise.
Here’s the Basics of Product Liability Insurance Coverage:
Generally, there’s limited product liability insurance protection under your general liability insurance policy, yet it may not be enough to adequately protect your company.
It’s important to review your insurance policy with an experienced risk advisor, like us here at O’Neill Insurance, to learn more.
Premiums for product liability insurance are based on the type of products sold, volume of sales and the role of your company in the stream of commerce.
In addition, properly identifying products in your policy will ensure adequate protection at a fair price.
How To Limit Product Liability
Consider implementing these techniques into your organization to limit product liability:
Develop a quality control program and distribute it to your employees. It should outline procedures for product safety, design, testing and inspection. It should also include information regarding traceability, guidance regarding customer complaints and a product recall program.
Place serial or batch numbers on all products to ensure that they’re traceable in case of a recall.
Keep records of all information about your products, including testing, product performance, component percentages and complaints.
Ask a legal professional to review warning labels, assembly and operating instructions, disclaimers, and any other information distributed to consumers. If you need additional assistance, consult a product safety specialist.
Ask a legal professional to periodically review contracts and hold-harmless agreements for use with your customers and subcontractors. Ensure that these contracts limit the liability you will assume for a quality product. Also, consider obtaining certificates for liability insurance from your subcontractors.
Transferring risk is an essential part of protecting your company.
Want to learn more about Product Liability Insurance?
There’s no doubt that it’s a complex risk exposure, and managing your risk can be a major undertaking - even if you have access to all the right resources.
To supplement your risk management strategies and address specific risk exposures, give me a cal. My name is Pat O’Neill and I’m a Risk Advisor here at O’Neill Insurance in Wadsworth, Ohio. I’d love to learn more about your business and discuss risk mitigation strategies that can help reduce risk and transfer remaining risk for financial protection.
Call me at (330) 331-7960 or email me at firstname.lastname@example.org.