An Introduction to Product Liability Insurance

As a small business owner, you should be aware of the risks you assume when playing part in the supply chain of a product—whether that be in sales, distribution, installation, or manufacturing. While creating your strategic marketing plan, did you remember to include product liability insurance?

That’s why we’re here! And, we want to tell you all about it.

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We live in a litigious world where almost anything could threaten your small business. It’s important you understand the specifics behind your insurance and how the details could potentially help you and your business in the case of a lawsuit.

Now, to answer your question.

What Is Product Liability Insurance?

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Product liability insurance is designed to protect your business from two kinds of claims:

• Lawsuits, accidents, or negative reactions arising from products sold, distributed, or manufactured
• Third-party claims such as bodily injury and property damage losses arising out of a defect in the product your business sold, manufactured, or distributed

Insurance Canopy helps small business owners assess the specific risks associated with their industries and then customizes liability coverage to meet their needs. So, if someone were to sue you because of something that happened to them as a result of having purchased your product, you could be held responsible. And that’s if you’re anywhere in the chain of distribution. Some of the most damaging lawsuits against businesses are related to defective products. For instance, this could be someone having an allergic reaction to a food you sold them or someone getting injured from using a product they purchased from you. Unfortunately, anything is possible, and you just never know what could go wrong.

What Does Product Liability Insurance Do For Me And When Would I Use It?

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As we mentioned, your product liability insurance would likely cover you and your assets in the event of a third-party liability claim arising from defective products. This means that if a product you made, sold, labeled, or altered caused bodily harm or physical injury to another individual, you could be on the hook. Let’s review some real claims our customers have filed with us:

• A claimant sued one of our customers after they alleged that a conditioner they purchased and used from them caused permanent hair loss.
• A customer of ours was selling improperly labeled food at an event, someone sampled some and had an allergic reaction to what was served and they sued.
• Another customer of ours was sued by a client of theirs after a face and neck peel they used on them allegedly caused burns on the client’s skin.

All policies have conditions, limitations, and exclusions, please read the policy for exact verbiage. Claim scenario circumstances vary in nature and similar claims do not guarantee coverage. By now, you’re probably thinking this all sounds pretty good. Your insurance could help if the worst were to occur. But there are things this insurance wouldn’t cover. So, let’s get into what wouldn’t be covered under product liability because we’re sure you want to be fully aware.

What Does Product Liability Not Cover?

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Like all insurance types, product liability insurance carries exclusions. To have a better idea of what your policy covers, make sure you review and understand your policy with your agent when you purchase. Many times, exclusions to insurance are covered by another type of small business insurance, so if one kind of insurance doesn’t pick up a claim, another kind possibly could—be sure to check with your agent. Here are some exclusions and the insurance that could respond if product liability can’t:

• Professional negligence:

  Professional liability insurance would respond to claims of negligence. This type of coverage may protect you from claims that a professional service you provided resulted in physical or financial harm to a client. This is also referred to as errors and omissions (E&O) insurance.

• Employee injuries:

  Work-related employee injuries are covered by workers compensation insurance. Most businesses are actually legally obligated to carry this type of insurance, make sure you purchase employee injury insurance.

• Slips and falls on business property:

  These types of accidents are covered by your general liability insurance and we’ll give you more details below.

What Other Benefits Does Carrying Product Liability Insurance Give Me?

You might not know this, but oftentimes your product liability insurance is tied in with a general liability insurance policy. This means that along with the coverage provided by your product liability insurance, you are also covered for general liability claims as well. Thus, you would have coverage in place if a product you sold caused someone harm, or a bodily injury or property damage suit was to be filed against you, such as a slip and fall accident. General liability insurance primarily protects you from most liability claims for bodily injury and property damage arising out of your business operations. It may also provide coverage for personal and advertising injury claims. That being said, your general liability policy could respond if any of the following were to occur:

• A customer slips and falls in your store causing them to break a bone.
• Equipment in your store falls and hurts a customer.
• A fire is started in the building.

Besides providing you with additional coverage, there’s one more way product liability could greatly benefit you. You’ll need a product liability policy if you dream of…