Each company involved in designing, manufacturing, or selling products have their own product risks. A product could harm or cause property damage to customers, which will result in lawsuits. Products cause injuries due to either design or manufacturing defects.
Often, manufacturing defects are why products must be recalled, and companies must pay hefty compensation. A manufacturing company is any business that is involved in the production chain of products.
Many manufacturing firms include industrial, automotive, electronics, chemical, F&B manufacturing and more. Any of these companies (including factories) can be blamed for and accused of manufacturing defects.
A manufacturing defect can be caused by many reasons and through any stage. Hence most manufacturing companies purchase product liability insurance. The article will explain the different types of manufacturing defects and product liability insurance coverage.
What Is Product Liability Insurance for Manufacturers?
When taking action against a product business due to a defect, it is important to understand which party is at fault – whether a design defect or a manufacturing defect. Manufacturing defects are flaws in the creation process of an initially safe product. In comparison, design defects are faults in the product’s original design structure.
Product liability insurance will cover legal costs and damages for the manufacturing company due to defect claims. These claims result from third-party injuries or property damage directly as a consequence of the manufacturing defect.
The insurance will cover legal, compensation and settlement costs related to lawsuits/claims. In addition, it will help the business recover from manufacturing mistakes and focus on improving its process.
Common Manufacturing Defects Covered by Product Liability Insurance
Incorrect Production (Instalments)
A manufacturing company’s duty is to turn a design into a safe tangible product, using materials and production processes. Manufacturers must ensure it is as close to the design as possible and safe for consumers. One mistake in the product that the designer did not intend can lead to manufacturing defects.
Manufacturing defects can include when a product is not built accurately, resulting in loose parts, sharp corners and more. Additionally, it can also include when the product does not perform its intended purpose due to the manufacturing. For example, the manufacturing factory did not correctly lock down a small piece of a toy. As a result, the small part will be loose and cause a choking hazard to children. Parents can sue the responsible company for their child’s injury and demand compensation.
Machine error, human error or poor product quality checking can initiate these defects. However, no matter when the error occurred, the manufacturing company will be held liable if the negligence causes injuries or property damage to a third party. In such cases, the business will have to spend on legal, compensation and settlement costs. The costs can add up to millions depending on the severity of the injury or property damage.
Wrong Materials (Quality)
In many jobs, a manufacturing company is responsible for what materials will best suit a design and its purpose. Manufacturing companies must use their professional experience to find a high-quality and safe material for the product. A wrong choice of material can easily cause injuries or damage to a third party.
A poor choice of material manufacturing defects can make products dangerous, unstable, or even toxic. For example, a house’s front yard caught fire due to the glass used in a window. The glass used reflected the sunlight straight into the lawn, like a magnifying glass. The heat onto the grass and trees started huge fires burning the entire yard and almost the home.
The homeowners could easily sue the window manufacturing company for damage and compensation costs. When the injury or property damage is due to the material, the manufacturer will always be accountable. The wrong choice of material can destroy the purpose of the product and cost the company a large amount of financial loss.
Electrical Issues
Mistakes while making electronic product is a disaster waiting to happen. When manufacturing electrical products, businesses must be extra careful. One minor slip-up can result in dangerous fire, explosions and serious injuries and damage.
Electrical issues could happen due to faulty wiring, battery issues, overheating products, etc. Unfortunately, such manufacturing defects are common even for the biggest manufacturing companies. For example, there have been cases where electric blankets have overheated, which has severely burnt users or damaged homes.
The manufacturing company will be responsible for electrical manufacturing defects in such events. In addition, the liable business will have to pay for medical bills, property repair and compensation. These lawsuits could happen at any point in the product lifecycle, and companies must create products that are always safe and should be ready to deal with possible claims.
Toxicity
Some manufacturers manufacture products such as medicines, food, hygiene products and more. Manufacturers sometimes even use chemicals to layer products to ensure they are either more durable or for aesthetic reasons. However, no matter where and how the chemical is used, it must be safe for the end user, the environment, follow laws and local norms. Each chemical/ingredient used should be legal in the sold country.
For example, many companies that produce paint, and varnish are at risk from lawsuits due to children or pets falling ill from the product. Especially pets, as they may lick varnish and fall seriously ill – the pet owner may sue the varnish brand for compensation.
Each ingredient should be tested and approved by health authorities before putting into a product, no matter how long it takes. Toxic chemical poisoning is one of the worst manufacturing defects that can negatively impact customers and the brand. In such cases, a brand can even go bankrupt with compensation and settlement costs. Therefore, each manufacturing company should have an adequate strategy to deal with such defects, to help customers and themselves.
Why Is Insurance Crucial for Manufacturers?
Product liability insurance is the most crucial insurance – every manufacturing companies need it before they even begin constructing one product. Moreover, the insurance is the ideal protection manufacturers need from product defect claims. Manufacturing defects can happen at any point; one accident can lead to millions in losses.
The insurance will cover all the above manufacturing defects and more. In addition, the insurance will cover the financial loss, from legal to compensation costs. Therefore, the cover benefits the company and the affected third party (customers).
Manufacturing companies should also purchase additional insurances and extensions. These insurances and extensions include public liability, manufacturing E&O, environmental, property all-risk and product recall insurance.
Learn more about this additional insurance in our manufacturing risks article.
In conclusion, product liability insurance will help protect manufacturing businesses, customers, and their future. With insurance, manufacturers can improve from mistakes, help customers, and focus on producing better products.
To Learn More about product liability insurance and cover manufacturing defects in Hong Kong and Asia, contact Red Asia Insurance.
