What is Product Liability Insurance and Does My Business Need It?

You have developed an exciting product that has the capabilities of changing your customers’ lives. You have put in enough effort and invested your valuable resources to design, develop, manufacture, and market your new product, and now it’s ready for the grand launch!

But before you make your product live, make sure that you have a strong insurance policy to protect yourself. While your new product might seem promising to generate higher traffic and drive more sales, it also comes with several challenges. Your product can be open to liability threats if it causes any harm or damage to anybody.

This is why you need to insure yourself from such damages and liability complaints. Any company dealing with product manufacturing, distributing, or selling must get a product liability insurance cover, without which business owners might risk their business.

Businesses often make the blunder of not purchasing the right product liability insurance policy before starting out. Wrong decisions made, in this case, might result in the loss of money and other resources, and most importantly, your reputation!

Product liability insurance might seem expensive, and you might think it is absolutely unnecessary. Because you are confident about the benefits your product would have and that it is of the highest quality. Then why should you have any problems at all?

But you never know about the potential threats it might have, and therefore, it is a must to protect your brand image and save yourself from facing liability threats. A product liability insurance policy would protect you against devastating lawsuits and save your company from false allegations.

What is Product Liability Insurance?

A product liability insurance policy offers protection to manufacturers, distributors, wholesalers, and retailers against any liability lawsuit made due to third-party damage or injury caused due to the use or consumption of the products sold or distributed by a business. The policy protects a company against any legal issues and offers coverage against all the expenses resulting from it.

Having a product liability insurance cover is essential for any business manufacturing, selling, or distributing products, irrespective of its annual turnover. You are at risk the moment your product is in the hands of a third-party. In case a lawsuit is raised against your brand, claiming that your product has caused damage or injury to an individual, entity, company, etc., a product liability insurance policy can protect you.

You might be held responsible if your product causes property damage or bodily injury, which can be for various reasons. The most common among them include manufacturing defect, design defect, or marketing defect. The worst part is you can still get yourself into trouble even if you didn’t do anything wrong.

Such lawsuits can be damaging for your business health, brand image, and your finances. This is the point when a good product liability insurance policy can come to your rescue, especially if you are a small business or startup having limited financial backup and other resources.

Moreover, product liability insurance would also ensure business continuity even after a lawsuit is made. Because it would be quite time-consuming and costly to free yourself from legal issues.

Who Needs Product Liability Insurance?

Any business that creates, sells, and supplies products need product liability insurance. Even if your product seems to be a ‘low-risk’ one, you never know how your product can cause harm to a third-party. Since lawsuits are time-taking and expensive, you might end up regretting not having the right product liability insurance policy.

Some of the top businesses who need to get product liability insurance coverage include –

  • Bakeries/Food chains/Restaurants
  • Clothing stores (both brick-and-mortar and online)
  • Coffee shops
  • Pet supplies shops
  • Print shops
  • Online retailers (eBay, Amazon, Flipkart, Etsy, etc.)
  • Website designers
  • Equipment suppliers
  • Software designers, manufacturers, and distributors
  • Wholesalers and other retailers

Irrespective of the type of product you sell, what stage of the supply chain you fall in, or the annual revenue you earn, you will need a product liability insurance policy. In other words, even if you are not into designing or manufacturing the products you are distributing or supplying, you can still be held responsible if anything goes wrong.

At times, simply proving that your product was faulty can help the consumer win the lawsuit, which means you can be held liable even if you tried to do everything to prevent problems.

And for small business owners, the high expenses of a lawsuit can be a huge burden. Not to mention the amount of stress and time investment the owner might need to input, which might hamper business continuity! This is why you need the backup of a product liability insurance policy.

What Does Product Liability Insurance Cover?

In case a customer files a lawsuit against you on the grounds of receiving harm or injury as a result of using or consuming your product, a product liability insurance can offer you coverage in these three major categories –

  • Design defects – when the product originally had a faulty design.
  • Manufacturing defects – when your product was created or manufactured incorrectly, thus causing harm or damage to the consumer.
  • Marketing defects – when your product was marketed wrongly to push the sales. Examples include not providing proper instructions for use, or not offering sufficient usage or consumption warnings.

A product liability insurance policy might also offer coverage in events like –

  • Accidental contamination: it happens when your product gets accidentally contaminated with a substance that is unsafe to your consumers. A well-known example can be seen in food products that are contaminated during the production process due to the accidental addition of a harmful ingredient, resulting in the consumers falling sick.
  • Extortion: it occurs when a product is sabotaged deliberately with the intention to cause harm to the consumer. It can be done either by the company itself or by some third-party or the company’s own employees, who probably want to destroy the reputation of the brand that is manufacturing or supplying the product.
  • Mistake in Labeling: improper product labeling might make a person fall sick or cause property damage. For example, people prone to allergies need to check all the ingredients used before consuming. This is why proper labeling is necessary to ensure the safety and well-being of your consumers.
  • Government Recall: it occurs when the government takes over the matter and orders the business creating or selling the product to recall it, since it has proven to be harmful to the consumers.

In conclusion, you never know what’s ahead after you launch your product. It’s best to stay protected against any lawsuits to safeguard your business reputation and your valuable resources, mostly time and money!

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