Product Liability Insurance Basics

What is Product Liability Insurance?


Product liability insurance provides protection against claims made against a business associated with the manufacture, production, and sale of products. It covers the seller, retailer, distributor, supplier, or manufacturer’s liability for injuries or losses to the buyer, bystander, or user caused by a malfunction or defect of a product. In other cases, it covers losses incurred from a failure to warn or instructions defect.


Why Do I Need This Insurance?
Product defects, production mishaps, and improper labeling instructions can all occur during the normal course of a business. Because of this reality, many small businesses protect themselves with product liability insurance as a safeguard against the financial costs of being sued as a result of these defects or mishaps. Without the protection of product liability insurance, even the most conscientious business could become bankrupt by a single product liability lawsuit.


A business, whether large or small, is legally responsible for any injury or damage a product causes. A small business has a responsibility that its products are “fit for purpose” and are safe to be sold. A small business owner may be still liable for a faulty or defective product even if his company didn’t manufacture it. If your small business sells, supplies, or delivers goods or services, then you need product liability insurance.


Types of Product Liability Claims


There are three common types of liability claims that a small business may face, each covering a different area of potential litigation:

  • Defect in Design – Design defects are inherent in the design of the product. Sometimes when a product is designed, the product ends up being unreasonably unsafe. Take for example, a chair intentionally built with three legs that result in injury due to being unstable and wobbly.


  • Flaws in the Production or Manufacturing Process – Sometimes a part of a product’s production process results in an unsafe product defect, even if unintended. Looking at the chair example again: A three-legged chair, if built correctly, may be very stable. But a misplaced bolt during the production process causes the chair to be unstable. In this instance, the chair would be deemed to have a manufacturing defect, rather than a design defect.


  • Defective Instructions or Warnings – These are essentially marketing defects relating to inadequate instructions or failure to warn communication. A marketing defect example would be a toy without a warning label such as “Warning: Small children should be supervised when playing with this toy”.

Whether you are a toy manufacturer, restaurant owner, start-up, or existing business, product liability insurance is essential for protection against product liability lawsuits.