What is Product Liability Insurance?

Product liability is the legal liability a manufacturer or trader incurs for producing or selling a faulty product. The truth is, if you’re a part of the supply chain and an individual or group successfully proves they were injured by a product you sold or distributed, you are potentially legally liable. And that could cost your business dearly. Even designers and suppliers can be held accountable.

What are the chances of a defective product? Naturally, the more output, the greater the likelihood of the products having some defect. As your business grows, this could become a more significant concern over time, no matter where you fall in the supply chain.

How prevalent are product liability claims?

In the United States, thousands of faulty or defective products have been reported across every industry. This has resulted in notable recalls across several product lines. And there have been 19 different types of vehicle recalls, including snowmobiles and recreational utility vehicles.

Health Canada recalls hundreds of food products each year, from contaminated meat and seafood to ice cream and salmonella-infected vegetables and grains.

As product recalls continue, one thing remains: If you’re a product manufacturer, wholesaler, designer, supplier or retailer, you are at risk for a claim.

What’s your recourse as a business?

Product liability insurance exists to protect manufacturers, wholesalers and distributors from claims arising from products they make or sell. It covers bodily injury and property damage resulting from the manufacturing, sale, handling or distribution of a product.

Lawsuits and claims are typically based on a manufacturing or production flaw, a design defect, defective warnings or instructions, or strict liability (liability in the absence of negligence). Anyone in the manufacturing and supply chain could be held liable. Generally, any business dealing with consumer goods should have product liability insurance.

For example, consider Takata, one of the largest automotive product manufacturers. Takata ceased operations after a series of injuries and deaths associated with its airbags led to a massive recall. Product liability insurance can help protect your business from the expense of defending such a claim.

Pay now, save your business later

Product liability insurance premiums aren’t as expensive for small businesses as you might think. Premiums start at a few thousand dollars and are rated based on the potential for claims. Typically, a larger business that produces higher-risk products will have higher annual premiums.

Product liability insurance can have more exclusions and more reasons for an insurance company to deny coverage, which can relate to changes in your production method, materials or design. Adding new products can also affect your coverage.

Your business may already have partial or full coverage under a partner or affiliate’s policy, but it’s best to understand how you’re protected before a lawsuit occurs.

Whatever the cost, product liability insurance can potentially protect your business against hundreds of thousands of dollars in lawsuits. Reach out to your insurance broker to find out if product liability insurance makes sense for your situation.

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This content is for informational purposes only and not for the purpose of providing, financial, medical or legal advice. You should contact your attorney, doctor, broker or advisor to obtain advice with respect to any particular issue or problem. Read more about our limitation of liability here.