A product liability crash course for retailers

Insureon Staff.
By Insureon Staff
September 7, 2016
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If a customer is injured by a dangerous or defective product, they might hold your retail businesses accountable. Learn more about when your retail business is liable for defective goods it sold.
Two people inspect a product in a shop.

When you hear about a consumer goods recall, you might picture manufacturers yanking their products from shelves and issuing refunds to consumers. But faulty goods also impact retailers. If your store sells a product that turns out to be dangerous or defective, you can be liable for the damage it causes.

Wait, I can be held liable for someone else’s defective goods?

It may seem hard to believe, but the reality is that when a product is deemed harmful, anyone involved in the journey from manufacturer to consumer can be liable for damage the product causes, including:

  • The company that designed the product
  • The vendors that provided materials for the product
  • The manufacturer that physically made the product
  • The distributor that shipped the product from the manufacturer to retailers
  • The retailer that sold the product

Most states allow consumers to recover damages from anyone involved in the product chain without having to prove that they were negligent. They only need to prove that a company did one of the following:

  • Designed a defective product
  • Manufactured a defective product
  • Failed to provide adequate warnings or instructions

So if you don’t provide warnings covering every possible scenario of how a product might malfunction, you could easily be sued over a faulty product.

So how does product liability work?

You may have heard about IKEA’s recall of chests and drawers that had the unfortunate tendency to topple over if not anchored to the wall. And, let’s be honest, how many of us are anchoring our dressers to the wall?

Let’s say your store sells dressers similar to the ones included in the IKEA recall, made by a company called Swedish Fürnitüre. A child trying to get the top drawer open accidentally pulls the Swedish Fürnitüre dresser down on himself, breaking both his legs and fracturing a rib. He’s going to be fine, but his parents sue both Swedish Fürnitüre for designing a product prone to tipping over and your store for selling it. The parents are seeking the cost of their son’s medical bills and damages for pain and suffering to the tune of $1 million.

If the lawsuit succeeds, it could be enough to put your shop out of business – unless you have product liability insurance (usually included in a general liability insurance policy).

How can product liability insurance protect my business?

Product liability insurance can help pay for legal expenses, such as attorney's fees and judgments against you, if a product sold at your store leads to:

  • Property damage
  • Illness
  • Injury
  • Death

Depending on the seriousness of the damage caused by the product or how cantankerous the inured party is feeling, you could face an extremely costly lawsuit, so product liability insurance can be extremely handy to have.

How do I get product liability coverage?

We’ve got some good news for you: you may already have it if you have general liability insurance. Most policies include some product liability coverage. Check your policy's language or call your agent to make sure, though. If your policy doesn't include product liability coverage, you can usually add it.

For more risk management tips, check out "Top 5 risks for stores and retail businesses."

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