Product liability insurance is a key coverage for companies involved in the production, distribution, or sale of products. Although you likely enforce robust quality assurance procedures to make sure that your products will not fail, there’s still a chance that something could go wrong at some stage. A component provided by another manufacturer could fail, for example. 

Defective product claims are a particularly important concern for manufacturers of products, but it’s important to remember that companies in other areas of the supply chain could also be held liable if products are found to be defective, and retailers and importers can be held liable for product claims as well.

How does product liability insurance protect against defective product claims?

If a product is found to be defective and your business is sued, product liability insurance can protect you by paying for litigation costs, settlements, and other expenses. If one of your products fails and causes damage or wrongful death, you could be on the hook for significant costs, including attorney fees, legal defense costs, costs for investigations, damages or compensation paid to affected people, punitive damages if you are found to be at fault, and more.

Even if your company is not at fault, the costs for defending a case could cause severe financial strain. In addition, product liability claims can cause decreased productivity while you deal with the case, and you may need to pay for testing and investigations, repairs to systems, or new designs. The financial support product liability insurance provides can relieve your company from the burdens of these costs. 

Does general liability insurance provide enough product liability protection for defective product claims? 

General liability insurance policies typically cover some product liability as part of products and completed operations coverage, but it’s important to be aware that this coverage may not be sufficient for companies with higher product liability risks. The product liability coverage included in general liability insurance may have lower limits and many specific exclusions. Defective product claims can result in very costly litigation; if you rely only on the coverage provided by your CGL policy, you could find yourself forced to handle major costs yourself once limits are exceeded. 

To ensure they have adequate coverage for defective products claims, companies typically obtain an endorsement on a CGL policy to expand coverage or purchase a separate, standalone product liability policy. 

What kind of defective product claims will product liability insurance cover? 

When thinking about defective product claims, there are three major types of defects that would be covered by product liability insurance: manufacturing defects, design defects, and lack of appropriate warnings. 

Manufacturing defects could include mistakes made during manufacturing that cause the product to not meet specifications, contamination that occurs during the manufacturing process, faulty packaging, or other errors in production that cause damages. 

Example: 

• Sunscreen is contaminated with irritants during the manufacturing process, causing users to break out in painful rashes. 

Design defects occur when a product’s fundamental design is flawed and leads to injuries or property damage. 

Example: 

• A hair straightener’s handle becomes extremely hot and burns users when placed on the highest setting. 

Lack of appropriate warnings can lead to product liability claims when a company fails to make customers aware of safety information and warnings about any hazards presented by the product. 

Example: 

• A potentially hazardous cleaning chemical does not include instructions for proper disposal. People pour it down their drains and develop health problems as a result.  

When could your company be held liable for a product liability claim?

Although manufacturers of products have particularly high exposure to product liability claims, many other companies could be found liable as well—even in situations where the defect wasn’t their fault. Although it’s possible that a court of law may find your company not to be at fault, the costs of defending a legal case can be high. Having product liability insurance can lessen the financial strain of dealing with litigation. 

Manufacturers

Manufacturers have the highest exposure to defective product claims since they’re responsible for making sure the product functions correctly. Manufacturers of components and suppliers of materials used in other products can result in liability for all companies involved.

Example:

•  A dishwasher is manufactured with the wrong size screws, which eventually causes water to leak and damage users’ floors

Distributors and Importers

Even though they did not manufacture the product themselves, distributors and importers can be named in product liability lawsuits. If products are imported from outside the country, the product’s actual manufacturer may have no office or employees to be sued in the U.S. In many cases, this means that legal proceedings will try to recover damages from the U.S. importer or distributor. In addition, importers could be held liable for product liability claims if a fault was caused during the transport process. 

Example:

• A company distributes bicycles that are manufactured and assembled outside the U.S. A manufacturing defect causes the wheels of the bicycles to jam up easily, causing injuries. Since the manufacture is abroad, the lawsuit targets the U.S. distributor. 

Wholesalers and Retailers

Even though retailers are not responsible for manufacturing the products they sell, they could still be held liable in defective product claims. Retailers and wholesalers have a responsibility to make sure they sell safe products. If an unsafe product was sold, the retailer could be included in the lawsuit, even if they did not cause the defect. 

Example:

• A retailer sells phone chargers that are found to overheat and cause fires. In a lawsuit, customers allege that the retailer sold the chargers even after this defect was discovered. 

How do I get product liability insurance?

There are a few options for securing coverage for product liability, and the choice really comes down to your level of risk exposure. Product liability coverage is available via:

• A general liability insurance policy. There are some minimal levels of product liability coverage provided under the products and completed operations portion of a standard general liability policy, and this may be sufficient for those businesses with low product risk.
• An endorsement to a CGL or business owner’s policy (BOP). Additional product liability coverage may be added to an existing general liability or business owner’s policy.
• A standalone product liability insurance policy. For businesses with a high risk of product liability, it may make sense to purchase a separate policy through an insurer that specializes in product risk.

Below we’ve highlighted a few of our trusted partners who offer product liability coverage in various forms:

Insurer	Product Liability	General Liability	Business Owner's Policy
CoverageSmith	??	??	??
CoverWallet	??	??	??

Final Word

A lawsuit about defective products could be financially devastating for many companies. Although you can take steps to ensure a safe manufacturing process and thoroughly test products, there’s still a possibility that defective products could slip through your defenses. In these cases, product liability insurance can step in to protect your company from any defective product claims that arise. The financial support provided by product liability insurance can help you continue to operate.