Product Liability Insurance

Common sense says that if you’re selling any sort of tangible product, you want to have a product liability insurance policy in place. We live in a litigious society where there’s a low bar for taking someone to court. If a customer alleges they were hurt or had their property damaged because of your product, you could be on the hook for legal fees and damages.

But it’s not just the retailer that has to worry. In a product liability case, everyone along the supply chain could theoretically be held liable. As a general rule, if you’re a) using contract manufacturers overseas and/or b) selling the product under your own brand/label, you’re considered a manufacturer for liability purposes. So the physical manufacturers as well as the distributors, marketplaces and retailers (to name a few) are all links in the chain that could be held accountable if someone gets hurt.

Most people think about the high-profile cases when they think about product liability. It’s fair, there have certainly been some big ones. There’s an entire documentary (“Hot Coffee“) exploring tort cases like the infamous scalding a woman received from a cup of McDonald’s coffee in the 1990’s. They serve as extreme examples of how companies can be held accountable for how their products interact with the world around them.

Product liability insurance protects your company from 3rd party physical injury claims — either bodily injury or property damage — that are caused by your products.  These claims come at the company from multiple angles:

• Manufacturing defects: a manufacturing error taints a batch of cosmetic products, which severely irritate customers’ skin
• Design defects: there’s a weak spot on the new bike frame you’ve designed, causing the front fork to buckle and throw the rider over the handlebars
• Inadequate Labeling: your dietary supplement, though perfectly harmless, lacks certain labeling that provides adequate/required warnings to consumers

Any number of these situations can give rise to claims under product liability insurance for startups and massive companies alike. With a product liability insurance policy in place, the insurance carrier will pay the costs of legal defense as well as covered judgments and settlements made against the company following these types of injuries.

Typically, product liability coverage will be included as a line item under the company’s commercial general liability (GL) insurance policy. Sometimes a standalone product liability insurance policy is necessary for startups with more unique products. Standalone product liability may also offer some costs savings compared to a comprehensive GL policy given differences in coverage provided.