Why Companies Need Products Liability

Product liability insurance coverage is a policy designed specifically for manufacturers, distributors, importers, and sellers of products.  This policy provides defense and pays damages related to the manufacturing or selling of products, food, medicines, and other goods to the public.  The policy provides coverage for injuries to buyers, users, or bystanders that are caused by a defect in the product, including design defects and failure to warn. 

What are the coverage triggers of a products liability policy?

The coverage triggers are defect in production or manufacturing of a product, design defects, and failure to warn consumers.  Production or manufacturing defects is when a claim alleges that a defect occurred during the production process which resulted in a defected product that caused bodily injury.  Design defect is when a claim alleges that the design of the product is defective and thereby inseparably unsafe to consumers.  Failure to warn is when a claim alleges the product was not labeled correctly therefore consumers couldn’t understand the risk. 

Why is it important for a business to carry products liability? 

One products liability claim can result in a business being put out of business.  The types of damages that are awarded by courts for product related claims are medical costs, compensatory damages, economic damages, attorney’s fees, and punitive damages.   However, not all insurance carriers offer this broad of a policy.  Make sure your business has a product liability policy to provide payments for these damages.   

How are the premiums for products liability determined?       

The policy is rated on the type of product, the estimated gross sales per year, and the insured’s role in the process.  Rating factors for products are determined by the hazard or danger the product could potentially present to consumers.  For example, manufacturing chemicals is a much higher risk than manufacturing buttons.                                                              

Why does a company that didn’t manufacture the product need products liability coverage?

Retailers, distributors, and importers often assume that because they didn’t manufacture the product that they shouldn’t have to insure the product.  The problem with this is that these businesses have a product liability exposure because they are directly distributing the product to the public.  Retailers, distributors, and importers are also brought into lawsuits for products liability. 

Businesses that are manufacturers, distributors, and importers of products need to have products liability insurance coverage.   This coverage will protect businesses from claims resulting from defective products, defective design, and failure to warn.  Damages that are awarded for products liability claims include medical costs, compensatory damages, economic damages, attorney’s fees, and punitive damages.  Not all policies will provide coverage for each of the damages.  Make sure you understand what your products liability insurance covers. 

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