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Product Liability

What is product liability, and does your business need it?

If your business makes or sells products via a storefront or e-commerce website, you have a responsibility for the quality and safety of those products. If one of those products causes harm to a customer, or causes property damage, you could find yourself in the middle of an expensive and time-consuming lawsuit. To avoid massive financial hardships, its important to have a product liability policy in place, which can help mitigate the costs associated with lawsuits filed against your company.

In the simplest terms, product liability insurance protects business owners against the costs associated with damages caused by their products.

Types of product liability claims

The most common types of product liability claims are:

  • Design defects: This causes faulty products before the products are even made. It suggests that the design of the product was unsafe or faulty. Do your due diligence to understand where your products are coming from.
  • Manufacturing defects: Sometimes an issue arises while the product is being made. It may have been assembled incorrectly, or missing an important piece. Testing procedures should be implemented for all your products.
  • Marketing defects: This cause actually has nothing to do with the product itself, but rather with the way it was marketed or advertised. Incorrectly labeling, incorrect safety warnings, or insufficient instructions are common marketing defects.

What businesses need product liability insurance?

Clearly any business manufacturing any kind of products for sale, such as food, hardware items, furniture, clothing, sporting equipment, etc., needs to be protected by product liability coverage as an extension of their commercial general liability policy. In addition, sellers including wholesalers and distributors also need to be protected from claims. Any business may be held liable for an injury to a product purchaser because they helped market the product to the end consumer. Some common examples of businesses that would require this coverage include:

  • Wholesalers
  • Bakeries
  • Florists
  • Resturants
  • Print and copy shops
  • Coffee shops

Aside from the legal consequences, faulty products won’t exactly present a good image for your business either. The best course of action is to implement a set of quality assurance guidelines such as testing procedures, source evaluations, indemnification from upstream sources, proper packaging disclosures, and limited consumer warranties. Your last line of defense should be a strong product liability insurance policy, but it’s always good business practice to be more proactive than reactive.

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