How to Protect Yourself from Product Liability

As a small business, you want to do everything you can to protect yourself, and one area to focus on in particular if you sell physical products, is product liability. When it comes to business insurance requirements, these can vary depending on your state. For example, business insurance in Mississippi might be different than the coverage you need in California, but regardless of what you’re required to have, you should go above and beyond to protect yourself. 

Below is more information for business owners about product liability and related protection. 

What is Product Liability?

If you were to get sued because of product liability, it could destroy you financially. The median payout for jury awards related to product liability is $1.5 million. 

If you make products that could be potentially harmful, like pharmaceuticals, supplements, or even clothes, you’re exposing yourself to a lot of risks, and you need to be especially mindful of protection. 

The term product liability, in a legal sense, refers to sellers or manufacturers being held liable for putting defective products into the hands of a consumer. 

Responsibility for product defects leading to injuries falls onto all the sellers of the product within the distribution chain. 

Under the law, the general requirement is that products meet the ordinary expectations of a consumer, and if there’s an unexpected danger or defect, the product doesn’t meet this standard. 

There’s no federal law for product liability, and instead, it’s usually based on the laws of your state. A product liability claim can be brought under legal theories, including strict liability, breach of warranty, or negligence. 

Liability could rest with the manufacturer of the product, the manufacturer of parts used to make the product, the party that installs or assembles it, the wholesaler, or the retailer that ultimately sells it to a consumer. 

There are three main types of product defects—design defects, manufacturing defects, and marketing defects. 

What is Product Liability Insurance?

Product liability insurance is designed to protect a business against bodily injury or property damage claims. It can help prevent a business or its owners from being financially on the hook for lawsuits if their product hurts someone. 

Product liability insurance is third-party coverage so that the payment for damages doesn’t go to your business. It goes to the person affected or injured. 

Things that aren’t covered by product liability insurance include employee and customer injuries at your place of business, product recalls, or commercial auto accidents.

Product liability insurance is also for physical harm and not digital harm. This means that damage is done by a tech product, it requires errors and omissions insurance or a professional liability insurance policy. 

Product liability coverage can protect you from legal fees, medical costs, property damage if your product damages the property of a customer, and wrongful death if your product leads to someone’s death. 

Do You Need Product Liability Insurance?

Not all businesses need product liability insurance. If you don’t produce, distribute, or repair physical products, you may not need them, but the term product can be pretty widely interpreted, so you do have to keep that in mind. 

If you’re in one of these industries, you might need product liability insurance:

• Distribution

• Retail, even if you don’t make products

• Food

• Construction

• Manufacturing

• Beauty and cosmetology

• Repairs

Even if your business is only online, but you sell products, you should consider product liability coverage. If you sell a physical product like software, you’d instead need to consider errors and omissions or professional liability coverage, as was mentioned above. 

Can You Just Get General Liability Insurance Instead?

General liability insurance can protect your business from claims stemming from bodily injury and property damage. You do need general liability insurance in nearly all cases if you operate a business because it’s so broad. However, you might also want to consider product liability insurance too, because it’s a lot more specialized. 

If you have a bundled business owners’ policy or a BOP, then you might have product liability coverage included in that. The specifics of a BOP will depend on your industry and your insurer, but if you’re in certain industries and have a BOP, it likely does include product liability insurance, although you still need to confirm. 

If you have general liability, you can check to see if it might cover you for product liability, too, or if you need additional policies. 

Risk Management

Along with having insurance coverage, as a business owner, you also want to ensure that you’re taking the proper risk management steps. 

First, you might want to have a risk transfer program, which can help protect you from liability that was caused by others. For example, you might have hold-harmless agreements with your suppliers and contractors that strictly indicate they’re responsible for their own negligence and errors, and omissions if a claim is made. 

Statements of financial responsibility can help you protect yourself if there’s a claim, and you need to make sure a contractor or supplier has the right insurance coverage. 

If you important anything, you might have the sole responsibility to make sure these adhere to safety requirements. If you’re an importer of products or raw materials and components, you should ensure that these products meet all government regulations. You also need to ensure the end user has access to the appropriate labels, instructions, and safety warnings. 

Any products that you sell should comply with safety standards, and you should do regular safety reviews to make sure your products are compliant, as are your warnings and instructions.

Take customer feedback tool seriously and use it as part of your business on a regular basis. If you review complaints and customer feedback proactively, you can avoid more serious or high-profile situations that occur because of issues or safety risks.  

Finally, you should keep documents and records that include your design specs and product orders. You should have written procedures and instructions, and you should make sure you preserve all important documents.