Product Liability Insurance
Embroker helps you get product liability insurance to protect your company against claims or lawsuits related to injury or property damage arising from defective products produced, distributed, or sold by your company.
Product liability insurance transfers the risk of defects, including expenses related to product lawsuits and other claims related to faulty products.
Product liability insurance covers claims related to product defects. If your company manufactures or sells a product that has a defect and that defect causes injury or property damage, your business could be held liable.
We wrote this guide to help you, the reader, understand both the basics of product liability insurance as well as some more advanced considerations. Our hope is that you walk away from this article a more empowered buyer, with a better understanding of the risk you can transfer to other parties via the product liability insurance product.
If you’d like help, we’d invite you to talk with a broker or get started by creating an Embroker account. Our highly experienced insurance experts will work with you to gain a deep understanding of your unique needs before negotiating a customized policy on your behalf. For more clarity on pricing, your business will be benchmarked against similar businesses to identify any unforeseen exposures and premium savings opportunities.
What Is Product Liability Insurance?
Businesses that manufacture or sell products have a responsibility to ensure the safety of their products. However, absolute safety cannot always be managed, which is why many manufacturers and sellers secure insurance to transfer the risk of claims related to their products.
Product liability insurance is in some ways similar to general liability insurance, but it is a unique form of insurance that is specifically designed for businesses that manufacture and sell products. The product may be virtually any type of good sold to consumers or businesses, from basic products like food and clothing to complex products like machines and medicines. The injured third party may be virtually anyone who comes into contact with your product, including the buyer, users, or even a bystander.
Who Needs Product Liability Insurance?
If you are manufacturing products, you should consider product liability insurance. Manufacturers are more frequently the party held liable in product liability claims. Even if your products are an input to another product, your business may still be involved in a claim.
If your company repairs damaged products, you should consider product liability insurance as well, because there is always a chance that the injury or damage caused by the product could have been related to something that occurred as a result of your business repairing or customizing the product.
Finally, many sellers are surprised to learn that they are also liable to claims. While many states limit a seller’s liability, the claims can get complex with many parties citing blame on each other.
As such, many businesses dealing with product manufacturing, distribution, sale, or repair will not work with other companies that do not carry adequate product liability insurance. Therefore, purchasing adequate product liability insurance will likely be required at some point by your customers or partners.
Why Do Businesses Need Product Liability Insurance?
Simply put, businesses need to protect themselves from the greater risks. For even the most diligent manufacturers, product liability claims happen.
According to United States Consumer Product Safety Commission:
- There were an estimated 240,000 toy-related injuries treated in U.S. hospital emergency departments in 2016.
- There were an estimated 144 unintentional non-fire CO poisoning deaths associated with consumer products in 2013.
- There were an estimated annual average of 28,300 emergency department-treated injuries as a result of television, furniture, and appliance product instability or tip-over incidents in 2018.
What Does Product Liability Insurance Cover?
Typically, product liability claims arise from design defects, manufacturing defects, warning or use defects, and strict liability.
- Design defects are claims related to the product issues that were present even before it was made.
- Manufacturing defects are claims related to problems that occurred while the product was being created or assembled.
- Warning or use defects are claims that the seller failed to provide adequate labels or warnings on risks and proper use.
- Strict liability is a claim that is based on the absence of negligence but where injury or damage resulted from proper use.
In short, a good product liability program will cover you in the case of the following: product injury lawsuits, injuries related to your product suffered by bystanders, illnesses from food or beverages that were consumed, illnesses related to toxins found in your products, property damage caused by products that were defective and even wrongful death caused by your product.
What Doesn’t Product Liability Insurance Cover?
Product liability will not cover injuries to your employees that may have occurred while manufacturing the product. This coverage will also not cover the cost of having to recall your product. The insurance type that can cover recalls is, logically, called product recall insurance.
Furthermore, product liability insurance will not cover damages to your products or lost inventory costs.
What Do Product Liability Insurance Claims Look Like?
Product lawsuit claims come in three basic variations: product design, manufacturing, and improper instructions.
Product Design: An example of this claim would be a children’s dresser that tends to topple over because of a top-heavy design, for instance. The liability in this kind of situation lies in the design of the product alone, which was faulty from the start and didn’t properly consider the safety of users.
Manufacturing: Let’s say something goes wrong on the assembly line for a new smartphone and the incorrect components are used in the construction of some phones. As a result, the affected phones tend to overheat and explode. Because the issue wasn’t technically design-related, it doesn’t affect all the phones. Still, the manufacturing issue is enough for a product lawsuit.
Improper Instructions: If a drug company releases a medication that can have dangerous side effects if taken in combination with another common drug or substance, the company must include a warning to that effect on the label. Failure to do so can lead to product lawsuits.
Highly-Publicized Examples of Product Liability Insurance at Work
- A popular fitness blogger and Instagram model in France died after a pressurized canister used for dispensing whipped cream exploded, hitting her in the chest. See: Whipped cream dispenser explodes, killing French Instagram fitness model
- Conair Corp. survived a product liability lawsuit alleging that a heating pad set a bed on fire, burned down a house and killed family pets. According to the judge, even though a woman fell asleep on a heating pad and woke up with her bed on fire, a product liability lawsuit must show evidence that a defect is probable, not just possible. See: Heating Pad Product Liability Lawsuit Flames Out
- A class-action lawsuit was filed against Samsung over allegations that the battery in various mobile phone devices caused them to explode and burst into flames. See: Another Samsung Class Action Lawsuit Says Phones Overheat, Explode
- An Austin police officer sued Ford Motor Company and Leif Johnson Ford for more than $1 million in damages claiming he was poisoned by carbon monoxide while driving his patrol car. See: Texas cop sues Ford, dealership alleging carbon monoxide poisoning
Product Liability Insurance Costs
Many factors can impact how much you spend on product liability insurance coverage. Drug companies and other businesses that manufacture medical and pharmaceutical products tend to be in the high-risk bracket and will pay considerably more for liability coverage. Products that are more likely to result in the injury of the user, such as guns or motorcycles, will also have greater liability risks and therefore face higher insurance rates.
Beyond your industry and the products you sell, the size of your company is a factor both in terms of how many employees you have and your revenue. If your business is a huge, well-known corporation, you are going to be a bigger target for litigation than you would be as a small mom-and-pop retailer.
Your claims history will also come into play. If your company has a long history of making great products and avoiding lawsuits, your rates will likely be lower than a new company without proven manufacturing success.
Finding the best product liability insurance coverage can help your business weather the storm of potential product issues and ensuing litigation.
Any company looking to purchase product liability insurance should definitely work with an expert broker who understands their industry and how product liability insurance can be used to transfer risk.
For the easiest, most stress-free way to buy business insurance that is tailored to the specific needs of your business, get started by creating an Embroker account today.