Product Liability Insurance Offers Protection for Small Businesses

There is no question about it: If you make or distribute a product, you must have product business liability insurance. You may feel that it is unlikely that your product might every hurt someone or their property, and that there is no chance of a defect in your product.

However, product liability insurance protects you from an element you can’t control: how people use your product.

You can, in fact, be sued if someone is injured using your product in a way it was not intended if you did not warn against that specific usage in your packaging.

Take for example the “cat in the microwave” urban legend. This is a story in which a woman put her cat in the microwave in order to dry it off. The cat, of course, did not survive this. The story takes a wackier twist when she then sues the microwave company for not warning her that you should not use a microwave in this capacity; and she won! While this is a ridiculous tale, it is thought by many to be true, simply because that is exactly how product liability works. You simply cannot rely on the common sense of the general public.

So, Product liability insurance is an important insurance coverage component that should be considered by any small business planning to sell or manufacture products. Regardless of the type of products that are to be sold or manufactured, there is always the possibility of consumers being injured by the product or claiming that the product did not perform as advertised.

General liability insurance, which is a common form of business insurance that most businesses obtain, will generally cover some aspects of claims of property or personal injury from product use; however, this form of insurance does not offer the same level of coverage offered by specific product liability insurance policies.

Small business owners selling seemingly innocuous products often believe that they do not need to incur the additional expense of product liability insurance; however, if one defective product gets past their quality assurance efforts, or someone experiences property damage or personal injury from a product without a proper warning label, this one, individual lawsuit could be enough to shut a small business down.

Because of this, it is imperative that all small business owners consult with an insurance specialist to determine which forms of insurance coverage will safeguard their business and their livelihood, and should give special consideration to product liability insurance, which can protect them from the devastation of a lawsuit claiming property damage or personal injury from a product that they sell or manufacture.

Important Reasons for Businesses to Have Product Liability Insurance

People who own and operate a business are in the position to have a great level of responsibility and accountability. The organizations of the business relationship today puts the business at risk. Partnerships and sole proprietorship have personal liabilities. The protection is given to the property of these business’ in the event of a lawsuit. A lawsuit from a person receiving injury on the business property, for example.

There are three types of business liability insurance. They are general liability insurance, professional liability insurance and product liability. This insurance covers the damages from any lawsuit and associated costs.

Small, medium and large companies need to be protected in this manner, as well as new and old business to ensure their longevity.

The basic purpose of defective product liability insurance is to provide protection to a company from losing its assets in a lawsuit due to accidental circumstances. The company involved usually extends services in distribution, manufacture, and sales of a product. Now, although product liability insurance is to protect your business, yet, you must gather all the required information before proceeding with it.

When you are in business, there are several situations that may call for a need to get product liability insurance. There are circumstances that may make a company more vulnerable to unwanted damage due to lawsuits.

Products may have to face some defects during the manufacturing process; however, this is very unlikely to be intentional. Moreover, sometimes, carelessness may also result in damage infliction on the products.

Now, if this damaged product lands in the hands of a customer, the company may have to bear further consequences. The person receiving that damaged product may assert that the company has been responsible for that, and this may initiate trouble for the company.

These types of liabilities, such as, those that result from damage to property or those that arise due to personal injury or neglect on part of the company. Therefore, companies must go for product liability insurance because there is a lot of risk in the present day business market.

There are several general insurance plans that may offer limited coverage for the companies; however, they are not as useful as the holistic product liability insurance. Therefore, having product liability insurance may actually play the role of a rescuer.

Does Your Manufacturing Business Need Product Liability Coverage?

If your products cause harm to a person or damage to their possessions, you could be liable to pay for any recompense charges.

Product liability can cover those costs on your behalf, helping you to avoid unnecessary expenses.

You might not have manufactured faulty products; you can still be held responsible for any occurrence if you are the seller, and the product has your name on it. Therefore, your manufacturing business really needs product liability.

You must stick to the conditions as to quality control of products in order to be covered by your policy. The exclusions on your policy must be checked to ensure you have covered the best fits for your business. There are some products that actually invite more risks than others, ensure that the level of cover you have is the right one for your business.

The types of liability insurance you may need to consider include:

  • Public liability: This type of policy prevents you and your business against the monetary risk of being found liable to a third party for death or injury, damage of property or economic loss as a result of slackness.
  • Professional indemnity: This protects advice-based businesses from lawful action taken for losses incurred as a result of negligence; it provides insurance cover if your client suffers a loss.
  • Product liability: Cover against claims of goods causing death, injury, or damage is known as product liability. It covers you if any of these occurred to another business or person by the failure of your product or the product you are selling.

Liability Insurance is necessary to protect the small business owner from possible lawsuits. This insurance may be sold as part of larger insurance packages for business owners. You need to read the liability insurance carefully and any riders or disclaimers that may be added to your insurance policy. This is a general overview of what Liability Insurance covers and does not cover.

Liability Insurance covers injury or damage from the item sold by the business owner.

This item may have been faulty, designed poorly by the manufacturer, or lacked proper and needed warning labels.

Liability Insurance does not cover the following items:

Injury to a worker in your business, even if it is a faulty item or poor design from the manufacturer. Employees are not covered by Liability Insurance.

Damage to your business or vehicle by an item sold by the business. The small business’s fire insurance, car insurance or property insurance should be used to cover your business in this instance.

Recall items are not covered by product liability insurance. As the seller, it is your job as the expert of the products in your business to remove items that have been recalled. Insurance companies also offer withdrawal insurance to cover recalled items.

How Business Liability Insurance Works for Product Liability

If you operate a small business, you know how important it is to handle everything with importance and to offer the best in quality and service. But you also know that no matter how hard you try to provide the best, customers can still claim that you’re at fault in a situation (even if you’re not).

Nearly 80% of companies in the US are set up as a sole proprietorship or as a partnership. This kind of structure generally sets up a small business owner with a lot of risk… both in the company and personally.

Business liability insurance covers your assets  both business and personnel  from damage through lawsuits.

In the case of a lawsuit filed for individual or property damage, this type of insurance covers legal fees and damages. Business liability is a big problem for most small businesses, because they don’t understand it, and they don’t really know the risk of not having it.

Having a general liability policy is the rule of thumb – it provides the protection against things across the board, such as accusations and lawsuits against you for false marketing… to injury claims and damages to property. Many companies who invest in liability insurance choose only this type of policy.

If, however, a business is selling products, product liability insurance is key. A suit brought against a small business based on personal injury or property damage resulting from a defective product can easily put a business out for good…

product liability insurance protects a business from that danger by covering the expenses in those situations.

The cost for a product liability policy varies. If the product you sell is low-risk (like bookmarks) then your policy would be much more inexpensive than a policy for a company that sells something that could feasibly harm people, such as curling irons or flat irons, which involve high heats close to a person’s body.

The most important thing is to evaluate the matter seriously, as you would anything else in your business, and check the options available that can help minimize your risk.

The first type of product liability insurance coverage involves a production flaw, which means that during the manufacturing process there was a flaw which can turn up later and injure someone. If you sell this product as a retailer you can still be held liable. A design defect will be covered by product liability insurance as well.

A design defect did not happen during the manufacturing process but the party or parties that designed the product did not see that the product will eventually fail. Poorly labeling of a product could get you hauled into court. An example of this is the label on motorcycles warning that this product, if not used properly, can injure and kill.

Your business is too valuable and you worked too hard to build it up and then lose it in a court suit. Pay the extra money for product liability insurance and sleep better at night.