Summary
- Product liability insurance can guard against product-related claims
- This type of insurance covers claims caused by defects and malfunctions
- The average jury award for a product liability claim in 2020 was $2.4 million
If your company manufactures, sells, or distributes goods, it could be held liable if a consumer is injured due to a defective or malfunctioning product. Claims for damage or loss related to products, food, medicines, or other goods your company produces could potentially put you out of business.
Product liability insurance can help guard your business against product-related legal claims. Here’s a deep dive into product liability insurance, why you need it, what it can cost, and the coverage it can provide.
What Is Product Liability Insurance?
Product liability insurance can safeguard your company financially if one of your products causes property damage, injury, or death. This important type of business insurance is designed to provide financial assistance for legal fees, court judgments, settlements, and compensatory damages.
Your company could face product liability claims from a buyer, user, or even a bystander who becomes injured or dies because of a defect or malfunction in your product, a flaw in its design, or a failure to warn about it.
Product liability can go beyond just the manufacturer. It can impact many links in the chain of bringing the product to market, including distributors, importers, and wholesalers.
Many companies require their customers and partners that make, sell, or distribute goods to carry adequate product liability insurance.
3 Types of Product Liability Defects
When looking for product liability insurance, it can help to know that there are three types of product defects that could lead to liability for your company:
Design Defects
Design defects are inherent and make the product risky to use, even if done properly.
Manufacturing Defects
Manufacturing defects occur during the production process, which means only some of the products might be flawed.
Marketing Defects
A marketing defect occurs when a product is accompanied by faulty instructions or consumers aren’t fairly warned about the product’s danger.
Because there are no federal product liability laws, legal claims stemming from the aforementioned types of defects can vary from state to state.
What Does Product Liability Insurance Cover?
A product liability insurance policy can safeguard your business against the financial consequences of a product that causes the following negative effects:
- Injury: Can cover legal fees and settlements
- Property Damage: Can pay for the loss of or damage to property
- Illness: Can repay a consumer who gets sick from using your product
- Wrongful Death: Can cover legal fees and burial costs related to the death
Your commercial product liability insurance can pay for medical care, compensatory damages, and property damage to minimize the impact on your company’s bottom line.
Here’s a product liability insurance example that impacted the U.S. military: negligent testing of earplugs supplied to the U.S. military led to a 3M earplug lawsuit over defective units that resulted in tinnitus and hearing loss among military service men and women.
How Is Product Liability Insurance Cost Calculated?
When you compare product liability insurance, your policy limits will be the most important factor in determining what you’ll pay for coverage. Most product liability insurance providers offer two limits:
- Per-Occurrence Limit: The maximum payout for a single occurrence
- Aggregate Limit: The most the insurer will pay during the policy period
Many small businesses choose a $1 million per-occurrence limit and a $2 million aggregate limit.
To determine your premium, insurers also will consider your industry, revenue, location, deductible, products, and claims history.
Baby Product Liability Insurance
Making goods and products for babies and children clearly shows how industry type can impact cost and coverage. If you manufacture toys or products for babies and children, you might find it difficult to buy product liability insurance. There are several reasons why baby and children’s products are more difficult to insure:
- Businesses are held to a higher standard for baby and children’s products
- Children don’t have the judgment of adults and may misuse a product
- Some states don’t recognize product waivers with children
- Children typically have until their 18th birthday, plus two or three years, to file a lawsuit
The higher bar is intended to safeguard children during their developmental years and avoid issues, such as those that led to a recent baby food lawsuit after arsenic and lead were found in baby food.
Parents, outraged over learning that food they expected to help their babies grow might be damaging their brains instead, sued baby food manufacturers. The baby food lawsuit settlements have cost manufacturers billions of dollars.
The Average Cost of Product Liability Insurance
The average cost of product liability insurance for small businesses is around $1,192 per year or $99 per month. However, some businesses purchase general liability insurance at $42 per month, or about $500 per year.
How to Get Product Liability Insurance
Product liability insurance for distributors, retailers, wholesalers, or manufacturers can be included in a general liability insurance policy. You also can purchase a policy from a product liability insurance broker that customizes policies for businesses.
Learn More About Product Liability Insurance From ConsumerShield
In business, managing your risks is just as important as managing your costs. If you design, make, sell, or distribute some type of goods, you should strongly consider buying product liability insurance to manage the risk of claims for damages.
ConsumerShield can help you meet your insurance needs. Contact us today to learn more about your options.
