If you design, manufacture or sell products, you need to be concerned about product liability. In 2021, Law.com covered such a case where the plaintiff was awarded $11.5 million in damages, an eye-popping amount that indicates the significant financial burden placed on businesses found liable for product issues. Even smaller awards of $100,000 can be too much for a small business to handle.
Fortunately, product liability insurance pays for the defense and insurance claim settlement in cases where a customer is harmed from using a product you created or sold. Still, even business owners with this insurance already should be aware of the types of liability, the variety of defects you could be sued over and how to mitigate exposure to litigation.
As a preliminary matter, it is important to understand that most product defects are subject to the rule of strict liability. This means the manufacturer or seller will be held responsible for harm caused by the defect, regardless of whether it was at fault in allowing the defect to arise. Consumers are generally well protected under U.S. laws, and when it comes to product liability, they are entitled to expect that they aren’t purchasing dangerous goods. [Find out more reasons why product quality matters.]
As a business owner, you should take all possible steps to ensure your products are safe and safely marketed. If you don’t, it could cost you.
The product liability rules apply to defective products. There are three types of defects that give rise to product liability claims: design, manufacturing and marketing defects.
With so many potential risks, what are retailers and manufacturers to do? It’s all about mitigation.
You need to keep a few things in mind when choosing business insurance, including which insurance costs are deductible for small businesses.
Almost 11 million people were treated in the emergency room for consumer product injuries in 2020, according to the National Safety Council. That figure underscores why the risk of product liability claims is a serious concern for businesses that provide retail goods. A single design or marketing defect that affects thousands or millions of products could very well cause injuries and be too much for a company to bear financially.
However, there are various ways manufacturers and sellers can limit their exposure to product liability.
Products make the world go around, so businesses certainly should not be dissuaded from going to market with their new innovations. However, understanding the risks and taking the available precautions to avoid defects and mitigate the damage when product liability claims occur will benefit your business, your commercial partners and your customers.
Talk to a business attorney familiar with products and manufacturing, preferably one who specializes in your industry. Have the lawyer evaluate the steps you’ve taken to mitigate product exposure and reduce claims to see if there is room for improvement.
Product liability insurance is a specialized liability insurance that pays for the defense and settlement of product liability claims. It is often included as part of a general liability insurance policy, but your particular policy may not have the coverage amount desired if your company has extensive exposure to manufacturing or selling products that are deemed dangerous or have significant injury issues. This means you may want to buy a specialized, high-limit policy specifically for product liability.
Without product liability insurance, a business owner is left to pay for any damages out of company funds. Many businesses don’t have that kind of savings, so such a claim would likely be a big financial hit to the company. This is why businesses manufacturing and selling products should invest in product liability insurance; it transfers the financial risk to the insurance company. Check out our complete business insurance guide and our recommendations for the best liability insurance providers to ensure your business is covered the way it should be.
Kurt Smith contributed to the writing and research in this article.