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Product Liability Insurance in Action: Lawsuit Edition

A courtroom is one place most people try to avoid at all costs. Unfortunately, US Chamber Institute for Legal Reform reports that a 2013 survey found that 43 percent of small-business owners have either been threatened with or involved in a civil lawsuit. More to the point, the US Courts reports that the number of personal injury and product liability cases increased 20 percent in 2014.

If those don't seem like favorable odds to you, perhaps it's time to invest in Product Liability Insurance. Let's take a look at how the coverage can make a product liability lawsuit a little less painful.

WHO CAN BE NAMED IN A PRODUCT LIABILITY LAWSUIT?

Who Can Be Named in a Product Liability Lawsuit?

Many small-business owners assume they can't be blamed for a defective product. They think the responsibility for safety falls on someone else, such as the designer or manufacturer. But in most states, a product liability case target…

  • Manufacturers of the product or its components.
  • Designers.
  • Wholesalers.
  • Sellers.
  • Distributors.

Essentially, if a product passes through your hands on the way to the consumer, you can be held liable when its defects threaten public safety.

WHAT PROMPTS A PRODUCT LIABILITY LAWSUIT?

What Prompts a Product Liability Lawsuit?

There was a time when the individual who bought the product was the only person who could file a product liability lawsuit, but that's changed. FindLaw.com claims most states no longer require the plaintiff to be the purchaser, so a lawsuit may be brought by someone else, such as a pedestrian injured when a car's brakes fail.

However, to have a chance at winning, Lawyers.com notes the plaintiff needs to be able to demonstrate…

  • The product was defective.
  • The defective product caused an injury.
  • The injury from the product caused losses.
  • The defendant (e.g., the seller or manufacturer) had a duty to provide a safe product.

If the plaintiff proves all of these points, the next step is for the court to make them whole again. According to Nolo.com, judge may award damages to a plaintiff for their…

  • Current and future medical bills.
  • Lost wages or profits.
  • Property repairs.
  • Pain and suffering.

This may be a good time to do some worst-case scenario mathematics. Add up what that list might cost if you're on the losing end of a product liability suit. Can't afford to pay that out of pocket? Product Liability Insurance can cover legal fees and damages up to its policy limits.

HOW CAN I DEFEND MY BUSINESS IN A PRODUCT LIABILITY LAWSUIT?

How Can I Defend My Business in a Product Liability Lawsuit?

Once you receive notice of a pending lawsuit, contact your insurance carrier's claims department immediately. Most insurance policies require you to do so, but it also gives your carrier an opportunity to start lining up your legal defense.

Once you're in touch with a lawyer, you may want to:

  • Preserve all documentation about the product. You or your lawyer will notify employees, contractors, and anyone else who worked on the project to do the same.
  • Identify the specific product. Find the product that caused the damages so you can preserve it in an unaltered condition.
  • Guard your proprietary information. The plaintiff's attorney may request lots of documents, but your lawyer can request a confidentiality order at the start of a lawsuit to protect proprietary information.

Your lawyer may assist you with these steps while also writing motions, studying your case, and interviewing expert witnesses. In other words, the costs can really add up. Costhelper.com cites a lawyer who says product liability lawsuits can easily exceed $100,000, which is why it's so important to carry adequate Product Liability coverage.

Product liability lawsuits can be difficult to win, especially if strict liability laws apply. In states with strict product liability, the plaintiff doesn't have to show that you were negligent. Read more in "How Strict Liability Laws Impact Small Businesses."