Product liability insurance
You work hard to produce or sell high-quality goods. But, despite your best efforts, there’s still a chance that those goods could harm your customers or their property. If a product is faulty (or mishandled) and causes injury or property damage, you could be held legally liable. For example, if a baked good triggers an allergic reaction, you could be held liable.
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What is product liability insurance?
Liability is when your business is held responsible for damages or losses to a third party in the eyes of the law. Liability can be tied to your premises, operations, or products, or your work – for example, some manufacturers perform installation for their customers. While a commercial general liability (CGL) policy offers protection for your premises and operations, it also includes product liability policy, designed to protect you from issues related to the products you produce or sell.
For example, if a customer is harmed by one of your products, causing bodily injury or property damage, they could sue your company for damages. Even if a customer uses your product incorrectly — or misuses it — you could still be held responsible.
The right policy can help you recover from costs that result from:
- A design default that makes a product unsafe even while being used properly
- A manufacturing defect, such as a missing component or improper assembly
- A marketing defect such as incorrect instructions, labeling or safety warnings
To mitigate these risks, Federated offers product liability insurance that’s designed to protect business owners if they’re found legally liable for bodily injury or property damage to a third party. Product liability insurance is included within your commercial general liability policy.
Do I need product liability insurance?
If you produce, design, market, or sell products — whether donuts, apparel, cosmetics, or auto parts — you need product liability insurance. Even if you’re sure you haven’t done anything wrong, you could still find yourself embroiled in a costly, time-consuming lawsuit. That’s where insurance comes in.
Product liability goes beyond defects. For example, say you sell a product that requires proper ventilation to avoid toxic fumes. If a customer claims you didn’t provide adequate instructions (such as an operating manual or assembly instructions) or proper information on the product’s label, they could sue you for damages. A ‘product’ could also be a food item. If you sell muffins that cause an allergic reaction or food poisoning, you could be held liable.
Even if you win in court, you’re still responsible for legal fees. However, in a CGL policy, defense costs are covered under Supplementary Payments and do not reduce your liability limit. This can lead to a serious blow to your finances, not to mention the impact it can have on your reputation with clients and customers.
Some of the consequences of operating without product liability insurance may include the following:
- If you’re found legally liable for a product defect or malfunction, your company will have to shoulder the costs associated with the legal process and any financial losses that stem from the lawsuit. Could your bank account handle it?
- Aside from legal fees, you may have to pay for medical expenses, property repairs, and other expenses related to product defects — all out of pocket.
- A lawsuit can bring more than costly proceedings: legal trouble can cast a shadow on your business, potentially hurting your reputation with clients and customers.
Who should consider product liability insurance?
Any business that produces, distributes, or sells goods directly to consumers or business customers should have this coverage. If you’re a retail business, you’re still responsible for the products you sell, even if you don’t manufacture them. And if you develop a new product, or if you purchase parts or materials from a third party, you could be at risk of defects or misuse — even if you’ve made every effort to ensure the safety of the goods you sell.
These are just some of the businesses that should consider product liability insurance:
- Retail (such as clothing boutiques, beauty supply stores, gift shops, and florists)
- Food & beverage (such as restaurants, bakeries, coffee shops, and specialty food stores)
- Suppliers (such as equipment or raw material suppliers)
- Manufacturers, importers, distributors, wholesalers, and repairers of products
What advantages does product liability insurance offer your business?
Product liability coverage can help your business cover the costs of:
- legal fees if a customer or any third party alleges that your product caused bodily injury or property damage.
- property damage costs if your product is claimed to have damaged someone’s property or resulted in bodily injury.
- medical expenses if a customer or third party claims that your product caused illness or injury.
How much coverage you need will depend on factors such as the type of products you sell, the volume of your sales, and where you sell your products, as well as the limit of liability you choose. Some products may be riskier than others; also, the more product you sell, the higher the likelihood that one will have a defect.
A few examples of what product liability insurance does not cover:
- employee injuries
- product recalls
- damage to your property
- commercial auto accidents
Can you prevent claims from happening entirely?
While insurance is crucial to protect your business, nothing can eliminate risks altogether. But you can work to mitigate them, and we can help you! This is where the Federated Insurance Risk Services programs come in.
We’ve developed exclusive programs and services to help you enhance workplace and employee safety — a must in any business. Our Risk Services Specialists are available to help you create, implement, and maintain a company safety program and provide you and your employees with valuable safety advice.
When you need help quickly, our Risk Management Assist* service grants you access to our Risk Services Specialists, who can answer a variety of questions on topics including property, auto, and liability loss prevention. They can also provide guidance on any regulatory, legislation, or code requirements your business may be dealing with.
Other types of insurance coverage to consider
Commercial general liability insurance:
Commercial general liability (CGL) insurance can help if you’re found legally liable for bodily injuries or property damage to a third party, such as slip-and-falls. It can also offer protection in situations where you or your employees are conducting business offsite. This is also the primary policy under which product liability insurance is provided.
Commercial property insurance:
Commercial property insurance can help protect your physical assets, like your storefront and your warehouse. It’s also designed to help with the repair or replacement costs for tools, equipment, inventory, electronics, and other assets that are crucial to running your business.
Business interruption insurance:
Business interruption insurance is designed to help you recover lost business income and cover ongoing business expenses if your business is temporarily closed for repairs due to a covered loss. It also includes coverage for extra expenses to expedite your return to business.
Pollution liability insurance
Pollution liability coverage can help protect your business from environmental exposures. Businesses that store fuel on their premises can call on this coverage if fuel were to leak from their tanks, causing third-party environmental damage or damage to their own property.
