Common liability risks like slips, trips, and falls aren't the only ones to watch for. If your business manufactures, distributes, or sells products, then you're also at risk of product liability.  

A defective product, design flaw, or misleading label can all lead to costly lawsuits if they cause bodily injury or property damage. Even if the issue wasn't intentional, or if a customer misused your product, you could still be held responsible.  

Examples of product liability include: 

  •  A small household appliance you manufacture with a faulty power cord that overheats and starts a fire in a customer's home.  
  • A cleaning product that creates toxic fumes when mixed with other cleaning products and a customer loses consciousness and is injured.   

What is product liability insurance and who needs it? 

Any business that produces, distributes, or sells goods directly to consumers or business customers should ensure they have adequate product liability insurance coverage which is typically included in the CGL. Typically, this should cover: 

  • 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, labelling, or safety warnings 

Some products may be riskier than others. But the more products you produce or sell, the higher the likelihood that one will have a defect. 

Types of businesses that are most at risk 

Product liability risks don't stop with manufacturers. They can affect businesses across the supply chain, from importers and wholesalers to distributors and retailers. 

While manufacturers of consumer and industrial products should ensure they have the appropriate product liability insurance coverage, so should retailers and e-commerce businesses, importers and exporters of physical products, and private label product sellers. 

For example, if you're a retail business, you're still responsible for the goods you sell, even if you don't manufacture them. These goods include the ones we consume, such as food and beverage. In one case, a customer broke his tooth on a pit while eating a cherry pie, and the business was held liable. Situations like this show how even a small oversight can lead to costly claims, and why product liability insurance is essential for protecting your business. 

You're also responsible for the products you sell when using third-party parts or materials in the manufacturing process. If you purchased a defective part from a supplier, you could still be responsible for any defects or misuse, even if you've made every effort to ensure the safety of the product you sell. 

Businesses that are at risk of product liability include: 

  • Manufacturers, distributors, wholesalers, and repairers of consumer goods 
  • Suppliers of equipment and raw material suppliers 
  • Retailers, including clothing boutiques, beauty supply stores, gift shops, and florists 
  • Food & beverage businesses, from restaurants, bakeries, coffee shops, to specialty food stores 

 Does selling imported or rebranded goods increase your risk? 

Importers and wholesalers can also be exposed to liability risks.  

Different countries have different product safety standards, and, in some cases, those standards may be much lower than in Canada. If your business imports raw materials, parts, or components as part of your manufacturing or distribution business, you're responsible for ensuring they're compliant with Canadian standards and that instructions or warnings are clearly stated on the label. 

Developing a quality assurance (QA) program, to help prevent quality defects, and a quality control (QC) program, to identify any potential quality defects, can help to maintain product quality and mitigate risk. When it comes to labelling and marketing, legal experts can help ensure your business is following applicable rules, such as providing appropriate instructions and warnings on your labelling. 

Why you need product liability insurance 

If you don't have product liability insurance coverage and you're found legally liable for a product defect or malfunction, you may have to shoulder the costs of the legal process and any financial losses that stem from the lawsuit. Aside from legal fees, you may have to pay for medical expenses, property damage and other expenses related to product defects.  

Product liability insurance can help protect you from financial losses stemming from these types of claims. How much coverage you need will depend on factors such as the type of products you sell and the volume of your sales, so having the right coverage for your needs is key. It is important to remember for product liability insurance coverage to be triggered a bodily injury or property damage must occur. 

Protect your business with product liability insurance 

Product defects and liability claims can have serious consequences, but you don't have to face them alone. The right insurance policy can help you cover legal costs and will respond to a products liability claim. To learn more about how you can protect your business from such risks, visit our Product liability insurance page today.  

This blog is provided for information only and is not a substitute for professional advice. We make no representations or warranties regarding the accuracy or completeness of the information and will not be responsible for any loss arising out of reliance on the information.