The Ins and Outs of Product Liability Insurance

Businesses that distribute, manufacture, and sell products must do their due diligence to ensure that they are free of defects. Unfortunately, despite the level of care and effort put into their operations, the possibility for errors remains, leaving the company open to potential claims and lawsuits. Product Liability insurance acts as a safety net, protecting companies from costly legal fees and hefty settlements should they face a claim.

What is it?

Product Liability insurance is a type of coverage offered as a standalone policy or part of General Liability insurance. It refers to any lawsuit brought forth by a consumer against a seller or manufacturer regarding a harmful or defective product that caused bodily injury or property damage. There are several types of Product Liability cases, but most claims typically fall into three categories:

  1. Product defects due to production or construction. One of the most common Product Liability claims, a manufacturing defect occurs when an error is made during the manufacturing process, resulting in property damage or bodily injury. For example, a vehicle losses control due to a missing part.
  2. Design flaws. Unlike defects in the manufacturing process, defective designs arise when mistakes are made in a product’s overall design, making it dangerous to consumers. A popular example is the transvaginal mesh lawsuits that began in 2012. Over 100,000 claimants alleged that the mesh caused complications, including pain, bleeding, infection, organ perforation, and autoimmune problems. The manufacturing company has paid roughly $830 million in settlements so far.
  3. Missing or improper labels, warnings, and instructions. This category focuses on claims related to a company’s failure to provide adequate instructions or warnings regarding a product’s correct use. One of the most famous failure to warn cases is “The McDonald’s Hot Coffee Lawsuit,” Liebeck v. McDonald’s Restaurants, where a Stella Liebeck sued the fast-food giant over a spilled cup of hot coffee. She claimed that McDonald’s failed to warn customers that they were serving scalding hot coffee.

What does it cover?

Whether the company is big or small, Product Liability insurance can help protect the business from financial damages from claims that the company’s product manufactured, sold, or distributed caused bodily injury or property damage. Product Liability insurance covers:

  • Design defects that occurred before manufacture
  • Manufacturing defects that occur during the production process
  • Strict liability, which means if a customer gets hurt by a manufacturer’s product, and the business owner isn’t found negligent
  • Improper warning, which can happen if a company doesn’t provide a customer with enough warning on the proper use or hazards associated with a product’s use

Why is it important?

Selling, manufacturing, and distributing products opens companies up to several risks. Product Liability is crucial to a business and its longevity. If a customer alleges that the company’s products caused bodily injury or property damage, this coverage will help the company pay legal fees, settlements, medical bills, and more. On the other hand, suppose the company only acted as the retailer or exercised proper care as the supplier or manufacturer. Then, if the product was free of defects but improperly used by the customer, the company can still be held liable for damages, and the coverage would help cover those costs.  

Who needs it?

Liabilities in the pharmaceutical, nutraceutical, and medical products industries are constantly evolving. Although prescription drugs, supplements, and medical products can provide great relief to consumers, they aren’t without risks like side effects and long-term issues. There can have big repercussions when the manufacturer misrepresents their products or fails to relay these potential risks to doctors and patients. These actions can potentially lead to injury and, as a result, significant financial losses; Product Liability coverage is essential. 

An issue can occur at any stage of a product’s production. From the design process to manufacturing, distributors, manufacturers, and retailers can benefit from Product Liability coverage to protect their business, even if they weren’t directly involved in the product’s defect.

Find the right Product Liability insurance

While it’s not ideal for your client to face a stressful and extensive product liability lawsuit, having Product Liability coverage in place can give them peace of mind while protecting them and their business from costly arbitration, litigation, and legal fees. Quaker Special Risk is here to provide your clients with the perfect Product Liability coverage to match their business needs. Contact us today to get started.

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