If you make, distribute, or sell products and a third party suffers bodily injury, death, or property damage as a result of your product, you may be looking at significant liability. In fact, the average jury award in product liability lawsuits was $7.6 million, more than the averages for medical malpractice, personal negligence, and vehicular liability, according to a 2018 Thomson Reuters report. Product liability insurance can protect your business from financial loss incurred when one of your products causes harm to a third party.
What product liability insurance covers
Product liability insurance covers claims related to product defects. These can include design defects, which render the product inherently defective; manufacturing defects, in which an accident or mistake occurs in the production process; or warning defects, such as when products are improperly labeled or fail to carry sufficient warnings for the user to understand the potential risks.
Product liability insurance is similar to general liability insurance, but it is a unique form of insurance that is designed for businesses that manufacture and sell products. It will cover the cost of defending lawsuits as well as settlements and judgments against the insured for covered events.
Who needs product liability insurance
Manufacturers, designers, retailers, wholesalers/distributors and product installers/repairers should consider their product liability exposure. A wide range of products, from food and pharmaceuticals to building supplies and mechanical products, could potentially cause injury, death and/or property damage. But certain product categories like pharmaceuticals, food and electronics carry higher risks. For instance, medicine that is accidentally made with an adulterated ingredient, a food product containing a common allergen that is inadvertently left off the ingredients label, and appliances with faulty wiring may cause bodily harm or even death. Product category as well as sales volume will impact the amount of insurance premium needed for proper protection..
Product liability insurance can be purchased as a standalone policy or as an endorsement to a commercial general liability or business owner’s policy.
Why product liability insurance is needed
A product liability lawsuit can easily put a company – especially a small business or startup – out of business. Product liability lawsuits are extremely expensive to defend as they typically require multiple specialized and costly experts, take years to prosecute, and often result in damages that include medical expenses, economic damages, punitive damages, and attorney’s fees.
Further, partner companies and investors may require that you have product liability insurance to do business with you. A retailer, for instance, may refuse to carry certain products that are not covered by insurance.
Product recall insurance, which covers the costs associated with the withdrawal, inspection, repair, replacement, and loss of use of products that are recalled, is not included in most product liability policies and would need to be purchased separately. Many policies also have a quality control exclusion, which voids coverage if quality control standards are not maintained. Other common exclusions include reporting exclusions, which apply if the insured fails to report new manufacturing methods, products, materials, or ingredients; efficacy exclusions, in which coverage will be denied if the product does not perform its main function; and material exclusions, which preclude coverage for certain ingredients or materials.
Insurance company response to product liability claims
As product liability lawsuits are expensive to defend, product liability insurance companies will seek to void coverage wherever possible. Insurers routinely contest various facts of the case in an effort to void coverage and avoid defending or paying for product liability claims made against policyholders.
If you are involved in a dispute with your product liability insurer, give us a call. It is our mission to make sure insurance companies keep their promises made to you and your business.
Contact us today for a free consultation.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack