Turn on your television at any given time and you will find a product recall of some sort. In 2014 alone, 64 million vehicles were recalled, and just under 17 million children's products. Tack on another 21 million pounds of food recalls and you have a recipe for millions of dollars in product liability lawsuits. For 2014, that number was $953 million. You don't want your business to be in that kind of club. Let's take a closer look at product liability insurance. Where does your business stand if you are ever sued?
Product Liability Insurance: Your Best Defense Against Big Lawsuits
The sad reality is this: It only has to happen once for most businesses. A product you sell can cause injury and you will be sued, even if you didn’t manufacture it directly. All an individual has to do is prove that you knew a problem existed with the product, yet did nothing to fix it. This is called negligence and could spell big legal trouble for your business. It's also just one example of a liability claim. To deal with these situations appropriately, you should obtain product liability coverage. But what is it and how does it protect your business?
Business product liability insurance protects on three fronts. No matter whether you are the product manufacturer, seller, or distributor, it will protect you from certain types of legal liability associated with a product defect that causes personal injury or damage associated with its use. You might even consider going further and purchasing product recall insurance. This is a slightly different type of insurance designed to help cover costs that might be associated with various recalls as they occur (more on that in a bit). Juries awarded $6.3 million per product liability claim in 2014. You want to make sure you and your business are protected. To do that, let's get familiar with the basic types of product liability claims.
Three Potential Product Claims
- Manufacturing or Production Flaw. If the way you produce a product results in creating something that is unsafe, you can be held responsible.
- Defects in Design. If the way your product is designed causes harm to a consumer, you could be held responsible for damage or injury.
- Defective Warnings or Instructions. If your product is labeled improperly, i.e., leaves off warnings or contains unclear instructions, and the use of the product results in injury, you could be held responsible.
Of course, no matter which potential product claim is made, the individual making the claim will have to be able to prove the following points:
- Was the product defective? In order to file a claim, it must be proven that the product was indeed defective.
- Causation. Was the consumer actually hurt by the defective product in question?
- Was there an injury? Did the consumer indeed sustain an injury by using the defective product?
- Did the manufacturer breach duty? It is usually assumed that the maker (manufacturer) of a product has a duty to produce a product that is safe.
A consumer could file based on negligence, strict product liability or breach of warranty, depending on the circumstances. But do these types of claims happen often enough to make product liability insurance a necessity? Remember, we mentioned earlier that juries awarded $6.3 million dollars per claim, on average, in 2014? Why take a chance? We live in a world where anybody can sue for anything, regardless of actual fault or blame. The cost of product liability insurance is much less than the amount you’d have to shell out if your business was involved in a lawsuit.
Who Needs Product Liability Coverage?
General liability insurance and product liability insurance are two different animals. There are rare instances, like churches, law practices, and services, where general liability covers product liability, but these are the exception. It's best to let an expert help if you are on the fence about whether you need coverage. A Trusted Choice® independent insurance agent can help you make an informed decision.
You could be a potential target for a product liability lawsuit if your business manufactures or wholesales a product, or if you are a re-seller or some other type of middleman. In fact, in a survey conducted for the Travelers 2015 Business Risk Index, legal liability was the No. 4 worry for business owners. Product liability insurance will help you sleep soundly, knowing your business is protected.
Obviously, prime candidates for product liability insurance are businesses that manufacture products. However, the coverage is also well-suited to other businesses. If you make repairs to a product, you could be sued if a customer is injured using a product after repair. You could be liable if your business transports a product that gets damaged while it is in your possession, and someone is injured while using it. Again, a Trusted Choice agent will help you assess your liability needs and choose the best coverage option.
So what does product liability insurance cover? That is the good news. Product liability insurance will respond when someone is injured by a product you produce, resell, distribute, or wholesale, assuming the injury is proven to be caused by your product. It will also cover court costs associated with a lawsuit pertaining to the product in question. Furthermore, it will handle medical costs for injury associated with the use of the product. There’s also no need to fret about premiums. In most cases, business product liability insurance is tax-deductible; ask your CPA. Yet, beyond the coverage and tax write-off benefits provided by your product liability insurance, there is another type of insurance policy you should consider, even if you have complete confidence in your product.
A Case for Product Recall Insurance
Even if you have a state-of-the-art, 24-point quality control checklist, you could still end up with a bad batch of product. Bumblebee Tuna recently had to recall 31,579 cases of product. IKEA recalled 4 million children's lamps in 2013. Any one instance where a consumer was injured by the product could have resulted in massive financial losses if these companies had not had the right insurance coverage. This is where product recall insurance can come into play. You should consider this type of insurance if there is any potential for a product recall.
Why? A recall event could send you into bankruptcy if you are not able to absorb the loss. Product recall insurance covers you for those types of events. It is different from product liability insurance, but runs parallel in form and function. If there were a product recall, the insurance would activate to cover expenses associated with the recall event. The FDA recalled 9,469 products in 4,075 separate product recall events in 2012, the highest in history.
Recalls can even affect entire industries. The dairy industry was hit and the price of eggs plummeted after 500 million contaminated eggs made people sick in 2010. Product recall insurance could save your business from costs associated with the recall.
How to Get Product Liability Insurance
The best way to get product liability insurance is to contact a Trusted Choice independent agent. Our agents have access to multiple insurance companies and policies. They will help you understand your responsibilities as they relate to a specific policy and can go over a range of options to help you find a policy that best suits your coverage needs. The right coverage could save you millions should a liability or recall event occur. Contact a local Trusted Choice agent today to begin discussing your options.