UPDATED: Sep 17, 2013
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Most business owners know the importance of carrying general liability insurance to protect the company from lawsuits arising from accidental injuries or damages. They may not, however, realize that there are many specialized types of coverage that can provide protection against specific circumstances. One insurance policy that may be particularly useful to businesses is product liability insurance, which protects your business from lawsuits that arise from defective or malfunctioning products.
What Does Product Liability Insurance Cover?
- Manufacturing or production flaws that create dangerous products
- Product malfunctions that result in injuries or property damage
- Product designs that are inherently defective and could result in injuries
- Failure to provide a manufacturer’s warning about a product’s potential risks
Essentially, a customer expects to be safe when using a product as directed. If injuries or property damage result from the use of a product, and those injuries or damages are not due to user error, then product liability insurance will usually cover any resulting claims.
When filing a liability claim, your insurance company will investigate the case to ensure that your business truly was at fault for the situation. If the investigation shows that the fault lies with either the end user or another user along the distribution chain, the claim may be denied.
What Businesses Should Get Coverage?
Although most businesses can benefit from product liability coverage, some companies require it more than others. If you do any type of manufacturing or production, product liability insurance is a must.
If you are selling a product that is not manufactured by your business, carrying liability insurance may still be a wise choice. Although you should not be held primarily responsible for defects in the products you carry, your business could still face legal trouble for negligence if you sell a defective item. For example, a product might not be removed in time from your store shelves after a recall. Carrying liability insurance would help protect from claims that you willfully sold a recalled product.
How Much Does Product Liability Insurance Cost?
The cost of a liability policy will depend on the amount of coverage you buy and the amount of risk you carry. A manufacturing company will usually pay more for this type of insurance than a retail business, for example, and a large corporation will usually require more coverage than a small business.
Additionally, the type of coverage you carry will affect the cost of the policy. For example, some policies will cover only medical expenses, not property damage costs. Others will pay only economic damages, not statutory or punitive claims. It’s important to discuss your options with the insurance company to ensure that you’re getting exactly the coverage you need. This will give your business the protection it needs without the risk of unnecessary coverage that might raise your rates.