Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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product liabilty insurance

If consumers are harmed in some way by a dangerous product, they may have a legitimate cause of action against those who originated, produced, sold or provided that product, which explains why they need product liability insurance.

In the United States, many people consider the rapid increase in product liability lawsuits to be a much-needed tool for ensuring their safety.

At the same time, manufacturers, distributors and retailers maintain that unfavorable verdicts in product liability cases mainly enrich plaintiffs’ attorneys and cause prices to increase rapidly.

Compare business insurance quotes today to save and fight the right policy for your business. Simply enter your zip code above to begin!

Businesses React to Product Liability Cases

Recently, companies have begun seeking tort reform from Congress and their state legislatures with the goal of reducing the amount of damages being awarded to consumers. In the most highly publicized cases, they often total millions of dollars.

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Product Liability Insurance

This insurance coverage protects a business from claims associated with manufacturing or selling food, medicine or other products to the public. It covers the insured for injuries or losses suffered by a purchaser, bystander or user that result from a malfunction or defect in the product. In some cases, this involves a “failure to warn” or a defective productive design.

Strict Liability

This is a factor when the responsibility of the manufacturer or vendor is extended to any individual who might have any injury related to the product, even when fault is not an issue.

manufacturing and productiong flaws

For example, injured bystanders or guests who have no direct connection with the product can sue for the damages it has caused.

To win their case, they must show that the item had a defect which led to the injury, and that the product is unreasonably dangerous because of it.

Manufacturing and Production Flaws

A claim in this category maintains that some step in the manufacturing process resulted in a serious, unsafe defect in that product.

For example, claims have been filed against manufacturers in China because their products were found to contain dangerous chemicals that infants ingested.

A manufacturer is legally negligent if reasonable care was lacking in designing, producing or assembling a product that injured a consumer.

This can occur if their employees fail to do their work properly, or if management approved faulty procedures, resulting in an unsafe product.

In these cases, those with a legal obligation failed to do something that industry standards required, or did something that could cause harm to the user and was not allowed.

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Product liability claims are often based on the following issues:

  • Breach of warranty results when the seller fails to abide by the terms of their claim, promise or guarantee related to the product. The law assumes that sellers provide customers with certain assurances related to the goods they sell, and that they should always stand behind those claims.
  • In regard to design defects, claims are made that a product’s design is basically unsafe. One memorable example from the 1970’s is the number of Pinto car cases that were filed against Ford during that period.
  • Other claims can be filed if the product is improperly labeled, or the warnings provided to the consumer are insufficient concerning the risk involved in using it.
  • Damages may include economic damages, compensatory damages and medical expenses, along with punitive damages and attorneys’ fees. In extreme cases, such as those involving asbestos manufacturers, companies may even have to cease operations because of product liability.
  • Misrepresentation occurs when a product’s advertising and promotion provide the consumer with a false sense of security concerning safety, often by intentionally concealing any potential hazards in using it. In these cases, plaintiffs must prove that they relied on the information they were given regarding its safety or lack thereof.

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Who Needs Product Liability Insurance?

Very often, retailers and wholesalers feel that they can go without this coverage because they are not engaged in producing a product. However, they are unaware that they can also be sued by consumers for alleged negligence. A majority of the states adhere to the “stream of commerce” concept of liability, meaning that if your business took part in bringing a particular product to the end user, you can also be liable for damages.

Where Can You Get Product Liability Insurance?

As a rule, this type of coverage is contained in a standard business owners’ policy. You will have to consult with your insurance agent, determine what is covered at this point, and discuss whether you are in need of any additional insurance.

How Much Does Product Liability Insurance Cost?

Not surprisingly, the premiums charged for these policies depend on the nature of the product, sales volume and the role the insured plays in the stream of commerce mentioned above. Because of this, you may be tempted to underreport your volume of sales or to insure only a portion of your sales. This is pointless, because substantial underinsurance penalties are usually applied when a company makes that mistake.

At the same time, be certain that the products you deal with are identified correctly. For example, if you manufacture step stools, they should not be classified as ladders, which would require a significantly higher premium because of the risk involved.