Guide to Product Liability Insurance for Small Business Owners — Backoffice (2022)

In 1944, Gladys Escola, a waitress at a restaurant in Fresno, California, was stocking up on glass bottles of Coca-Cola. As he filled the shelves, a broken bottle exploded in his hand, creating a five-inch gash that severed his nerves, blood vessels and muscles. He sued Coca-Cola Bottling Co., and the court ruled in his favor, meaning Coca-Cola was liable for damages.

While this California court case from 1944 may seem irrelevant to today’s small business, Escola vs. Coca-Cola Bottling Co. was instrumental in developing US product liability law. One could argue that’s why many companies require product liability insurance today. Let’s take a look at what they are and why your business might need them.

What is product liability insurance?

Product liability insurance is insurance that protects your business against lawsuits for bodily injury or property damage related to products you make, distribute or repair. In other words, product liability insurance ensures that you are not involved in expensive legal action if your product injures someone. Some cases of injury or damage are covered under your general liability insurance policy, but not all.

How does product liability insurance work?

If you make or sell a product, your business can be held liable for the cost of a product liability claim if your product ends up harming a customer—even if the customer uses the product incorrectly. Product liability insurance protects you from legal and financial fallout. It provides third-party protection, meaning that compensation goes to those affected or injured, not your business. (In this case, the person suffering the harm is the third party, and your business is the first party.)

What is covered by product liability insurance

Only damage caused by certain factors is covered. This includes:

• Design flaw. There is something wrong with the product design.
• Manufacturing defects. An error occurred during manufacturing.
• marketing. Errors in marketing materials, such as incorrect labels.
• Importer warning. The product does not include adequate warnings about potential hazards.
• Strict liability. The product harms the customer, even if it is your fault or not your intention.

What product liability insurance does not cover

Product liability coverage does not include:

• Technology products. Product liability is for physical harm, not digital harm. Any damage caused by technology products requires errors and omissions insurance (which covers losses your customers suffer due to your mistakes) or a professional liability insurance policy.
• Worker injuries. Workers’ compensation insurance covers employee injuries and lost wages.
• Customer injury. Injuries to customers at your place of business, such as slip and fall injuries, are covered by general liability insurance.
• Product recall. You need specific product recall insurance if a customer’s injury leads to a product recall.
• Commercial vehicle accident. Commercial vehicle insurance covers commercial vehicle accidents.
• Damage to your property. While professional liability coverage includes damage to other people’s property caused by your product, commercial property insurance covers damage to your own property.

What product liability coverage protects your business

Product liability coverage includes financial protection from:

• Legal fees. A customer sues your company after your product injures them.
• Property damage. Your product damages the customer’s property.
• Medical costs. Your product makes someone sick or injures them.
• A wrongful death. Your product kills someone or leads to their death.

Who needs product liability insurance?

Not all businesses need product liability insurance—it’s only required for companies that manufacture, distribute, or repair physical products. However, it is important to remember that “product” can be interpreted broadly. If your company sells food products and someone gets sick from eating your food, you need product liability insurance.

Consider looking into product liability insurance if your company is in the following industries:

• Manufacturing. You will be liable if your company does something that causes bodily injury.
• Distribution. Distributors can be held liable for damages caused by defective products they distribute.
• Retail. A grocery store is responsible for the products it sells, even if it doesn’t produce them.
• Food. Food poisoning can cause severe illness or death.
• Construction. Electricians, general contractors, plumbers and others who build physical structures can be held liable for job site damages and injuries.
• Beauty and cosmetology. Beauty products can cause allergic reactions and physical harm.
• Repair. If you’re in the business of repairing products, whether it’s washing machines or cars, and someone is injured as a result of your work, you can be held liable.

How to get product liability insurance

Product liability insurance may be included in a business owner’s policy (BOP)—a bundled insurance package that provides various types of business insurance, including general liability insurance, commercial property insurance, and workers’ compensation. Exact BOP coverage varies depending on your insurance company and industry. If your company falls under manufacturing, distribution, retail, food, construction, beauty or repair, your BOP may include product liability insurance (although it’s worth checking).

Depending on your business, your general liability insurance—which provides broad coverage against injury and property claims—may already provide you with adequate product liability insurance. Many of these policies apply. If you have general liability insurance, find out what is covered and whether you need to buy an additional policy.

As with other types of insurance, the best way to get product liability insurance for your business—combined in a BOP or on its own—is to request quotes from several different insurance providers for comparison.

Product liability insurance FAQs

What insurance do I need to sell products?

You need product liability insurance to sell products. You may also want to consider general liability insurance.

Do I need business insurance if I sell online?

If you sell physical products, you need product liability insurance, even if your business is online. However, if you sell digital products like software or web design, you need errors and omissions or professional liability insurance.

Do wholesalers need product liability insurance?

Yes, wholesalers require product liability insurance.

Is product liability included in general liability insurance?

Some general liability insurance policies include a level of product liability insurance, but it is not guaranteed and may not provide adequate coverage for your needs.

source: https://www.shopify.co.id/blog/product-liability-insurance