Product Liability Insurance

Product Liability Insurance helps cover the costs when a product you sell hurts someone or makes them sick. It's usually included in your General Liability Insurance and tends to be most useful to manufacturers, distributors, retailers, and restaurant owners.

Product liability lawsuits often make headlines. We've all read about a cup of drive-through coffee burning a customer's lap and defective brake pedals sending cars out of control. But are these stories relevant to small businesses?

Yes. Even small businesses have product liability risks. Whether you're a manufacturer, supplier, or retailer, something you sell could…

Damage someone's property.
Hurt someone.
Make someone sick.

And these problems come with big legal bills. A study from insurance company The Hartford found that product liability claims cost an average of $35,000. Read on to find out what kinds of risks small businesses have and how Product Liability Insurance can offer protection.

The average product liability claim costs $35,000.

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.

Strict liability makes it easier for customers to sue you.

What Counts as a Product Defect?

Okay. So we know customers can sue you over a product defect. But what counts as a defect? There are many kinds – spoiled food, broken toys, inaccurate labels – but they all fit into three main categories:

Design flaws: errors with a product's design that make it dangerous.
Manufacturing flaws: errors with a product's parts or the way it's made.
Advertising flaws: inaccurate directions or insufficient product warnings.

Any product liability lawsuit against your business will likely claim that your product had one of these three flaws. Remember: you don't have to be responsible for the flaw to be sued. If you're a manufacturer, you can be sued even if the flaw occurred somewhere in your supply chain.

How Much Does Product Liability Insurance Cost?

The cost of a Product Liability Insurance policy varies based on your industry, your revenue, the products or services you sell, the size of your business, and more. But let's look at what Insureon customers commonly pay for this coverage to give you a ballpark figure.

As we mentioned above, Product Liability Insurance is typically included in a General Liability Insurance policy. Costs for General Liability policies break down like this:

The average cost of a small business General Liability Insurance policy is $576.08.
Manufacturers may have higher premiums because of their increased product liability exposures. Insureon's manufacturing customers typically pay $425 to $1,030 per year.

Remember that these costs are only averages. Because risks vary from company to company, your insurance premiums may be higher or lower.

For more information on the cost of Product Liability Insurance, see our General Liability Insurance cost report.