If you own a small business involved in manufacturing, product liability tops the list of things that keep you up at night.
(article continues below)
All it takes is for one of your customers to suffer an injury or illness as the result of using your product, and you could lose it all . . . Unless you had enough foresight to protect yourself with product liability insurance.
As its name suggests, product liability insurance insulates your business from the financial impact of litigation arising from the use of your products. It transfers the legal risk associated with your products from you to your insurance company. Since small businesses are less able to absorb the effects of litigation than large companies, small manufacturing businesses who fail to obtain a proper amount of product liability coverage are gambling with their ability to continue to do business in the future.
Although this type of insurance sounds simple and straightforward, there are some nuances you need to be aware of.
From a legal standpoint, the manufacturer is responsible for bodily injury and property damages that arise from the use of their product. Most lawsuits seek compensation for damages in one or both of these two areas. However, if for some reason the lawsuit seeks damages that fall outside of the parameters of bodily injury or property damage, it may not be covered under your product liability policy. B sure to discuss what is – and isn't – covered with your insurer.
The amount of coverage you need is based on several factors including the size of your business, your business type, and the potential risk. Not all products and businesses carry the same amount of risk. For example, a company that manufactures socks probably isn't as risky as a company that produces flammable liquids, so it doesn't need to carry as much liability insurance. Survey comparable businesses and talk with your insurer to determine the appropriate amount of coverage for your company.
Scope of Coverage
Believe it or not, the business who manufactured the product isn't the only one who may bear responsibility in a product liability lawsuit. Liability may extend to the business whose name is on the product (regardless of who manufactured it), the business who assembled it or repaired it, the business who shipped it, and others. Given the fact that liability can be so extensive, it's worth having a conversation with your attorney to make sure your liability insurance fully protects your business from product-related lawsuits.
Since high-risk products and companies can b more difficult to insure than others, the market has created specialized insurers who are willing to provide for coverage for everything from power tools to pesticides. If your regular insurer is unwilling to provide product liability coverage for your products, ask them to refer you to a company who will.