Product Liability Insurance – What is it, what does it do, who needs it, and how does it work?
Product liability or as it’s often called products insurance is part of the Commercial General Liability Insurance policy for most insureds, it’s not a separate policy but instead part of the typical liability policy most businesses purchase, whether that’s on a BOP policy or a package policy. On rare occasions which I’ll describe in a minute, product liability is a stand-alone policy and not part of the typical general liability coverage form.
The purpose of this portion of the General Liability policy is to protect the insured from lawsuits that may allege some form of bodily injury or property damage resulting from that company’s product. In other words, someone is injured, becomes ill, or is hurt by your product or the product causes damage to to someone’s property. When these situations arise the claimant may sue for damages, including any pain and suffering.
Who needs product liability insurance?
Just about every business needs it – retailers, distributors, wholesalers, importers and most significantly manufacturers.
Why do I say: “most significantly” manufacturers?
Because any claims that may arise along the distribution chain – say at the retailer or wholesaler level, they will blame the manufacturer and likely enjoin them in any lawsuit for a faulty or defective product. So, for manufacturers, there is a need to be thinking about higher-than-average limits of coverage.
Why do importers have difficulty getting this insurance?
Often we’ll speak to business owners that are importing products from overseas and they’re having difficulty getting product liability insurance and they can’t understand why.
Well, the reason is like I just mentioned above. When you are a retailer or distributor of a product and you’re sued for a faulty or defective product that has caused bodily injury or property damage you or your insurance company may look to the manufacturer of that faulty product to be made whole for that claim. But, when you import a product from overseas it may be impossible for your insurance company to go after the manufacturer since they are overseas and they don’t have coverage for claims arising in the US.
Because there is no collectible insurance from the actual manufacturer, most insurance companies don’t want to cover importers.
Fortunately, we have special programs for importers that can cover these risks reasonably.
What about difficult products that are made here in the US?
If you manufacture or distribute a product and you’re hearing from insurance brokers or insurers that it’s a “difficult product” to insure, what does that mean and what do you do?
A “difficult product” is often one that is ingestible, which includes food products, supplements, nutraceuticals, or is high hazard such as toys, sports equipment, or is used in automobiles, or something that is naturally hazardous like a ladder.
In cases like these, you need to work with a broker, like The Coyle Group that is experienced and has access to the right underwriters and insurers that entertain these types of accounts. We’ve worked with all of the types of products I just mentioned.
I mentioned earlier that some product liability insurance is not part of the Commercial General Liability or CGL policy and written as a stand-alone policy and sometimes it’s these “difficult” product categories where this occurs.
What can you do to lessen the cost of product liability insurance?
- Prevention of claims is key and that will include having a good quality control process,
- Making sure that the products are designed and manufactured to meet or exceed safety standards
- Having the proper warning labels, instructions, etc.
- Having a recall plan in place to be prepared.
- Keep detailed records of component parts and raw materials, and select vendors carefully.
- Keep detailed records of the manufacturing process, QC reports, testing records, etc.
The bottom line is that if you import, manufacture, distribute, or sell products, having sufficient product liability insurance is critical to protecting you and your business. If you’re having difficulty getting product liability coverage and would like to speak further about it, hit that LET’S CHAT button in the upper right corner of your screen.
