Get a quote on Product Liability Insurance
If a customer sues your business for bodily injury or property damage caused by a product you manufactured or sold, the resulting legal fees and settlements can be financially devastating. Small businesses are particularly at risk because of the high costs to defend product liability claims and product recalls. Additionally, these claims may result in the loss of trust from the general public and potentially create a bad reputation. Your business should take every preventive measure available to reduce product liability risk.
What are common product liability risks?
Any business that designs, manufactures, sells, or even markets products are at risk of being held liable for third-party bodily injuries or damages. There are many ways your products can put your business at risk. Most notably, product liability can be divided into the following categories:
The design of your product may be the very reason your business is at risk. Claims of design defects argue that your product is dangerous to use or consume because of flaws within your design itself. As such, these flaws consistently exist with all of your products.
- Your bakery sells elaborately decorated cakes, but the non-edible decorations present a dangerous choking hazard. Your bakery may be held liable for this design flaw if a customer chokes on your product and sustains a bodily injury.
Production or Manufacturing Flaws
There are many ways to try and mitigate errors in the production and manufacturing phase of a product, but when an error does occur, your business may be held liable if the error causes injury or damage to a customer. Unlike design defects, these flaws are unintentional and not part of the original design.
- Due to a manufacturing error, the wrong adhesive was used to build a chair sold at your business. After purchasing the chair, your customer breaks her wrist when it collapses underneath her. Your business could be held liable for this manufacturing flaw.
Customers expect their products to come with adequate instructions and any necessary safety warnings. However, if these elements are not sufficiently included, your business may be sued for the oversight.
- Your pharmacy carries supplements that do not list out its potential side effects. Because this product does not have the necessary safety warnings, your business is at risk.
Finally, it is important to note that your business is at risk for liability claims even if there was no negligence on your part. A product may simply malfunction and you may be held liable. Under strict liability, a customer may hold your business liable if they can prove that a defect in your product was dangerous and caused injury when it was used as intended.
How can you reduce your product liability risk?
There are a number of steps you can take to reduce accidents and improve management systems during the various stages of product development. To help prevent potential product liability claims, consider the following suggestions:
Research and Design
It is essential to eliminate as many potential hazards during this early stage of product development. The following are some ways to reduce your product liability risk.
- Safety Reviews: It is important to review the safety of your product’s design before releasing it to the public. Even with a small team, repeated quality assurance checks can make all the difference.
- Vendor Management: If your product requires outside vendors, making sure your raw materials are properly sourced is a great way to reduce liability concerns.
- Imported Goods: If these vendors are located outside of the country, remember that you are responsible for verifying that all imported goods comply with industry standards and government regulations.
- Risk Transfer: During the creation of a product, your business will likely rely on relationships with others, such as your supplier. These partnerships come with potential financial and operational risks. Hold harmless agreements keep your contractors and suppliers responsible for their own negligence and errors in the event of a liability claim. Certificates of insurance assist your business by confirming that your supplier has the appropriate insurance in the event of a liability claim.
Although many risks should be eliminated during the design phase, errors that occur during the manufacturing phase of a product pose huge liability risks.
- Quality Control: Although these efforts should be present during all phases of a product’s life cycle, it is most essential during the manufacturing and production of a product. Many small businesses do not have the luxury of an entire team dedicated to quality control checks, so it is all the more important to regularly check for errors.
- Management and Training: Without a large staff to oversee quality control, it is even more essential that your employees are properly trained to handle their tasks. Management must also be able to communicate the importance of safety.
Sales and Marketing
Businesses that sell and market products may also be held liable for defective products even if they did not manufacture the product.
- Product Warnings and Instructions: Make sure products come with the necessary warnings and instructions before they are sold and marketed to the public. Warnings must identify all potential hazards, and instructions must be easy to read and understand.
- Marketing to the Public: The way your product is marketed to the public directly affects their expectations of your product.
- Selling to the Public: It is also essential that your staff is familiar with the product your business sells. If your sales team is familiar with all the product features and limitations, they can minimize potential exposures. For instance, if your business sells pre-packaged consumables, it would be wise for your employees to know the ingredients in case a customer asks about allergies. If your employees are familiar with the product, they are also much more likely to spot any manufacturing errors on defective products.
Although the product is out of your hands, there are still some ways you can reduce your liability risks during this stage.
- Feedback: As a form of risk management, efforts should be placed to collect customer feedback and create an environment where consumers feel free to share complaints and concerns. In doing so, you will be able to identify trends, such as a faulty product. After taking note of a defective product, you can quickly take steps to fix the issues before your business faces serious consequences.
- Documents and Essential Records: All businesses involved in the design, production, and sale of a product should create a functional method for collecting, organizing, and storing essential documents and records. These records will be necessary to prepare your business should you face a liability claim. In the event of a claim, a document control program demonstrates that your business takes product safety very seriously.
To give your business additional protection against product claims, it may be wise to consider securing product insurance. Product insurance comes in many forms, but the primary goal is to provide financial coverage for the legal costs of defending claims of bodily injury, property damage, or financial losses caused by your products.
Product insurance can be obtained through:
- General liability insurance includes some limited levels of product liability protection under products and completed operations coverage, but you may find that this is not enough coverage for your business.
- A product liability endorsement can be added to your existing general liability policy or business owner’s policy to provide more extensive protection against product liability claims.
- A standalone product liability insurance policy may be necessary for those businesses facing higher product risks, especially if your products are hazardous in nature (e.g., herbicides).
- Product recall insurance protects your business from the first-party financial costs of performing a voluntary or involuntary product recall.
Below we’ve highlighted a few of our trusted partners who offer product coverage in various forms:
|Insurer||Product Liability||General Liability||Business Owner's Policy|
Product liability insurance is effective and important for all businesses who sell goods and products, but there are many steps your business can take to mitigate the risk of liability claims. While it is impossible to foresee product failure, your business can protect itself by taking every step possible to ensure the production of safe products and prepare your business in the event of a liability claim.