Here Is A Complete Breakdown Of Product Liability Insurance And Why You Need It In 2023

TLTR: This article discusses product liability insurance and explains what it covers. It also explores price structure, insurance companies you can trust, and some exclusions.

According to the WallStreet Journal, healthcare giant Johnson & Johnson is considering placing a subsidiary in bankruptcy after their billion-dollar talcum-based baby powder lawsuit. The claims allege that the talcum powder caused ovarian cancer in several women. The bankruptcy news comes after the company was ordered to pay $2.1 billion following the nasty liability lawsuit.

Since the company itself is worth more than $400 billion dollars, it’s safe to say they will probably be able to sustain their business once any lawsuits are settled. Unfortunately, this is not the same for every business owner. That’s why product liability insurance is especially important for any business, big or small, to have.

What Is Product Liability Insurance?

Product liability insurance provides protection from lawsuits that may arise as a result of the sale of allegedly faulty products. It also helps protect your company from legal action by customers, clients, or consumers who claim to have been injured or suffered damages due to products marketed and sold by your organization. If you are a seller, wholesaler, or manufacturer of goods, it is essential to get the insurance.

For example, if a child were to swallow a toy given away at a fast-food restaurant and choke or otherwise sustain an internal injury, the parents could sue the fast-food chain for negligent design and distribution of a hazardous toy. Thus, the policy would cover any losses incurred by the company in paying damages, court fees, or settlement costs.

The U.S. has some of the strictest laws regarding product liability. Under these laws, everyone in a typical product supply chain can be held liable for a faulty product. These laws prompt manufacturers as well as retailers to maintain a rigorous safety standard that helps protect consumers.

According to the Insurance Journal, a safety regulator has decided to sue Amazon.com Inc. Products bought off Amazon harmed more than a few dozens of people.

While the company steers the blame to third-party vendors, it does seem to fall directly in the supply chain. If the regulators as well as other claims pass then Amazon is liable to pay a large settlement in a big case of a product liability lawsuit.

Who Needs Product Liability Insurance?

All business owners should have a certain amount of product liability coverage present in their business plan. Almost all businesses have a business owners policy (BOP) or business liability insurance (BLE). Here is a quick rundown of who exactly may benefit from it:

Manufacturers

Manufacturers generally invest in product liability coverage. For example, a carbonated drink is accidentally contaminated while in production. In such a case, when this batch of the drinks goes out for sale, customers may get sick, which may result in the company facing multiple lawsuits.

Retailers And Wholesalers

Retailers and wholesalers aren’t directly responsible for making products, but they can still be held responsible for any ill effects caused by anything they sell. For example, if a retail store accidentally promotes a sugared beverage as sugar–free, it could lead to diabetic consumers drinking the product and becoming seriously ill. Therefore, it’s crucial for retailers and wholesalers to have product liability insurance for a situation such as this.

Trade People

People who work as general contractors, construction workers, or installation workers may need product liability insurance as well. Say an office wants to set up new lights for the building. If a resulting electrical issue were to cause any physical damage to the property or the office workers, then the light installation company could be held liable for a defective product.

In case your business doesn’t fit the above-mentioned categories, then you may not require product liability coverage. In general, you may need the coverage for your business if your work:

• Firstly, relies heavily on human labor
• Secondly, could suffer from a recall
• Doesn’t have funds to cover the cost of a lawsuit
• Has difficulty managing the distribution of your product
• Lastly, cannot provide industry-standard packaging

Insurance Policies That Include Product Liability Insurance

Running a business in the current economic climate can be quite difficult. We understand that businesses all over are trying to cut costs. Since you hopefully understand the importance of product liability insurance by now, we’ve come up with ways of providing it as conveniently as possible. Here are some common policies that businesses have which can include product liability insurance:

General Liability Insurance

A commercial general liability insurance (CGLI) policy helps protect a business from unforeseen claims. The policy also covers many things including property damage, bodily injury, and product liability. According to Statista, the average cost of a CGLI policy is about $340 a year.

Errors And Omission Insurance

Errors and omission insurance (E&O insurance) is a policy designed to cover mistakes made by a business. The policy also covers litigation costs in case you make errors. Moreover, the policy also includes partial product liability coverage. According to Insureon the average cost of an E&O insurance policy would be a little over $700 yearly.

Professional Liability Insurance

A form of product liability insurance coverage can be typically found within professional liability insurance coverage. This is because professional liability insurance helps provide professionals with coverage from lawsuits brought by clients. It’s quite similar to employment practices liability insurance. Similarly, the average annual cost of this coverage is usually over $1,000.

Business Owners Policy (BOP)

BOP is a generic form of coverage that almost every business owner has in place. A standard policy also covers the insured parties from various types of financial burdens which they may fall victim to while running a business. This includes a portion of product liability insurance as well. Similarly, the standard cost of the policy is a little over $600 per year.

Product Liability Insurance Coverage

The policy covers product owners for losses incurred as a result of claims made against them. It also covers:

• Damage to someone’s property
• Bodily injury
• Someone getting sick
• Wrongful death

Some Exclusions

The National Law Review reports that the well-known toy company Fisher-Price recalled infant sleep products when four infants were found dead after using their products. While the article specifically focuses on the product recall, the financial costs of that process are generally not covered by product liability insurance. Other exclusions from the policy include:

• Employee injuries
• Damaged products
• Accidents involving customers (which have nothing to do with a product)
• Quality and performance issues
• Intentional violation
• Losses
• Third party liability
• Redesign costs

Note: If you want to get any of these included in your product liability insurance policy, you can ask your insurance agent or carrier to customize the policy for you.

Product Liability Insurance Cost

According to Advisor Smith, the average cost of the policy is $1,192 yearly. However, it is important to note that the higher your revenue is, the higher amount of coverage you will need to invest in. If your business generates a revenue higher than $200,000, then your yearly product liability insurance cost will exceed $7,000.
There are many factors that determine product liability insurance costs. These factors are:

Nature Of Business

Insurance companies offer different rates for businesses based on the industry they represent. For example, if you work in pharmaceuticals or automotive manufacturing, then your product liability insurance premiums will be higher than those of a small business owner who sells hardware online.

Position In Supply Chain

A company’s position in the supply chain typically corresponds to its degree of exposure for product liability claims. The higher up you are in the supply chain, the higher your risk of litigation. Manufacturing companies usually face greater severity and potential penalties (such as product recalls) while distributors may be liable only if they mishandled products or committed fraud during transactions.

Business Size

Larger businesses have to pay more for product liability insurance because they likely face bigger liability. If your company is too small, you might not be able to afford the coverage and will need another option such as self-insurance or risk management.

Products

A conglomerate is exposed to greater product liability risks than a company that sells a few product lines. Therefore, the former pays higher premiums than the latter.

Quality Control

If you implement enough quality control measures and mitigate product liabilities, your insurer is likely to reduce insurance costs. Implementing adequate quality controls has been shown to result in a lower chance of litigation because it lowers the chances for potential errors in production that may result from negligence or incompetence on behalf of workers.

Loss Control

When your company puts labels on their products that provide clear instructions on how to use or assemble the product, you are taking steps in preventing injuries and damage. This action will lower the cost of product liability insurance for your business.

Claim History

Higher claims reflect higher risks. Companies with a history of previous product liability claims pay more for insurance. Conversely, if you have never been sued before, your premiums will be lower.

Where Can You Get Product Liability Insurance?

There are many insurance companies out there, but not all of them can be trusted to provide you with the best coverage. We have done the research to provide you with a list of insurance companies you can trust for product liability insurance:

• State Farm
• The Hartford
• Embroker
• Renegade Insurance
• Nationwide
• Founder Shield

Conclusion to Product Liability Insurance

Protect your business by investing in product liability insurance. A lawsuit has the potential to negate everything you’ve worked for, and this is a devastating possibility that should not be taken lightly!

Protecting your company from lawsuits can seem like an expensive hassle with little return on investment. However, when it’s too late and a suit does come knocking at your door, don’t say we didn’t warn you!

Has this article been helpful to you? Leave a comment below and share your thoughts with us. Find an agent to discover the liability coverage that suits your needs. Are you looking for more information on insurance policies? Feel free to leave comments or reach out!