What Is Product Liability Insurance?
Product Liability Insurance can help pay for legal expenses when you're sued because something you sold caused an injury or damaged property.
Here's an example. Let's say you run a furniture manufacturing business. You make chairs for restaurants, so it's crucial that your product withstand a lot of wear and tear.
Unfortunately, your supplier doesn't warn you when it switches the source for the metal in its bolts. The screws that hold your chairs together are now being made with weaker metal. A chair breaks, a diner gets hurt, and your customer (the restaurant) is suing you for damages.
In the event of a lawsuit like this, Product Liability Insurance can pay for:
- Lawyers to defend your business.
- Medical damages you owe to the injured party.
- A settlement, if it makes sense to resolve the lawsuit out of court.
- Financial damages the judge rules you owe the plaintiff, if the case goes to trial and you lose.
What Does Product Liability Insurance Cover?
Product Liability Insurance covers "completed products hazards." In plain English, that means it takes care of the financial losses your product caused. Here's a breakdown of what is and isn't included in a typical policy.
Product Liability Insurance CAN cover…
- Product injury lawsuits.
- Illnesses from toxins in products.
- Injuries suffered by bystanders.
- Foodborne illnesses.
- Wrongful death.
- Property damage caused by defective products.
Product Liability Insurance does NOT cover…
- Slip-and-fall injuries at your premises.
- Employee injuries.
- Product recall costs.
- Damage to your products.
- Lost inventory.
- Professional liabilities.
One important note: Product Liability Insurance doesn't cover product recalls. If you have to recall a defective product, you'll need Product Recall Insurance to cover the costs. Your agent can answer any questions you have.
When Can You Be Sued for Product Liability?
A lot of small-business owners think that if they don't do anything wrong, they won't get sued.
Unfortunately, it's not that easy.
If you sell a product with a manufacturer's defect, you could face a product liability lawsuit from customers who were hurt. That's because of what's known as "strict liability" or "strict product liability."
As your lawyer can tell you, strict liability means that a customer can win a product liability lawsuit against you by proving just two things:
- A product you sold had a defect.
- It harmed them or damaged their property in some way.
This rule makes it easy for customers to collect compensation when they're hurt. But it can mean headaches for business owners. Luckily, Product Liability Insurance can cover the costs of these lawsuits.
Not every state has strict liability laws, but many do. Your lawyer or insurance agent can help you figure out what the laws are where you live.