Product liability insurance is known as the must-have insurance for any product in any industry. New products are entering the market daily. Many products succeed and make an impact; the public forgets some that fail. We all depend on various products, from the food we eat to the phone we use. Each product is manufactured for a particular target market and has a specific purpose. Products have their intended use and fall under various industries. Many people believe releasing a product generally involves a business selling a customer buying, but this is not the case.
When it comes to selling products, many stages and responsible parties lead to one product, from the designers, manufacturers, traders and distributors. Various risks are involved when releasing a new product in the market. There may be surprising outcomes when consumers use the product. For instance, a product can harm the user unintentionally, resulting in lawsuits and more. All companies involved in the product can be held responsible and may be affected by costly claims.
Any business that manufactures, designs or distributes products need Product Liability insurance. This insurance helps businesses involved protect themselves from these unexpected risks. It is an insurance that can save companies millions of dollars and ultimately save their reputation.
What Is Product Liability Insurance?
Product liability insurance provides business coverage against expenses related to claims against a product your business sold, made or distributed – that caused bodily injury, unlawful death or property damage. The primary purpose of Product Liability insurance is to cover legal costs and damages for the business due to the claims.
It is a common misunderstanding that the brand selling the product only needs product liability. The statement is false- as any stage of the product can be responsible for the claims. Each company involved should buy the product liability insurance, from the designer to the manufacturer to the distributor. The insurance can save the company from paying large settlements or defence against claims.
How Can Product Liability Insurance Cover Your Business?
A design of a product is one of the most important factors when introducing it to the market. The plan involves how the product looks, its purpose, intended materials, and its use. Furthermore, product design can also include packaging. A product design company will do their best to make the product perfect and safe with no defects. Unfortunately, an ideal product is almost impossible to achieve. The company is liable when there is a defect in the product. The fault can be hazardous to customers and can lead to injuries or worse.
An example of this is a business that produces watches and has been selling watches for years. Finally, it is time to release the new design, and it looks great. The customers are excited, and the product is quickly moving off the shelf. Later, a customer wore the watch for the first time and somehow cut his wrist and injury admitted the customer to the hospital. The customer has full rights to sue the business for design defects. The design company is liable for this injury and will have to face the lawsuit. The claim will result in a significant form of financial loss and even brand damage.
Product liability insurance will protect the design company by covering all third-party claims expenses, including defence, compensation, and settlement costs. Product liability insurance is crucial for any company that is involved in designing products for a large market. There will always be risks, even for a product that may be considered perfect. A small design mistake may be dangerous and costly.
Manufacturing of the product is also another factor that is involved in the backend of the product. The factory is responsible for using the design to create the physical product as intended. Once again, it is a crucial part of the product as it has to be the way the designer imagined it and has to be produced by the factory using a safe process (e.g. Non-toxic polish). A product defect can easily arise from the manufacturing company and their function. A manufacturing defect is a defect in a product that the factory did not intend.
Examples of manufacturing defects can include a bad batch of medicine containing a poisonous substance or a bathtub that isn’t waterproof. Manufacturing defects can lead to dangerous situations and injuries to consumers. A manufacturing defect can also cause property damage; in the case mentioned, if the bathtub manufactured isn’t waterproof, it can leak through and cause damage to the house. The factory will be held liable and sued for injury or property damage.
A factory can avoid the large, costly claims that result from mistakes made while producing the product by purchasing product liability insurance beforehand. Product liability insurance will help the manufacturing company by covering the costs from the claims. The insurance will also pay for the property damage compensation to the third party(Bathtub example) or the bodily injury (medical example). In the end, it will help them save a lot of money to keep running the business. However, it is essential to know that product liability insurance will not cover any product recall if many products are defective. Product Recall insurance is a different insurance service usually purchased with product liability insurance by a business.
Warning Labels Defect
Over the years, there have been more and more warning labels on products, for good reasons. The warning labels inform the user not to use the product and the dangers they could face if they misuse it. Customers use these labels, but actuality there to protect the company that designs and brands the products. As the labels can help avoid claims if the product was misused.
For example, a takeaway coffee cup from most F&B businesses has a label that says, “Caution Hot” due to a famous case when a coffee burned an elderly woman she purchased at a McDonald’s drive-thru, and that she received over $3,000,000. The claim was all because the hot coffee container did not have a “warning” label that it was hot. If the coffee burns a customer, they cannot sue the business due to the labels. Companies must analyse the risks involved with the product, even the obvious ones and add them as warning labels. A lot like warnings, adequate instructions on safe product use are essential too.
A product can cause serious injuries or property damage to a customer if used in the wrong way. Failure to warn can cost a company billions, even if the company was not at fault or the side effects were evident. Hence, when in doubt, warn. There are some hilarious examples of labels that exist just because of odd incidents that have occurred.
Product liability insurance will help reduce the financial damage of label defects/failure to label cases by paying for court and compensation fees. Insurance will save the brand millions of dollars and help settle the case. In the example above, product liability would pay the elderly lady for her injuries and compensate for the cost decided by the judge.
Distributors sell thousands of brands under their retail company. They are always at risk from product claims, as they are always the first company blamed when a product is defective. Retailers are responsible for providing the best quality and reliable products to their customers. If a product causes property damage, injury or worse – the customer will sue the retailer for selling them the product. The retailer will have to pay the settlement or defend the case, which can be costly and brand damaging.
An example of this is if there is a fire in the house and it is determined the cause of the fire is faulty batteries bought at a supermarket. The customer or the home insurance will be entitled to sue the retail supermarket for property damage. The distributor will have to pay for the property damage and extra compensation. The retailer also has the right to sue the manufacturer or supplier, which will cost even more.
On the whole, the distributor is in charge of sales and is the last part of the chain, hence the most liable according to most customers. The trust is why a distributor must have product liability insurance for their business, as they have higher risks than any other part of the product chain. Product liability insurance will pay for any costs related to the claims and compensation costs that occurred due to the product. Therefore, it will help the business against sizeable financial loss and focus on distributing other products.
Impact Of Having Product Liability Insurance
Despite the hard work that any business puts in to ensure they manufacture and sell high-quality products, there is still the chance that products will not be as planned.
Product Liability insurance will help the companies involved save a large amount of money and protect their financial assets. In addition, this will allow a company to continue future projects and move past the claims after being solved. The insurance understands a product can’t be perfect. Therefore, when a company knows that products are protected by insurance, it gives them the freedom to innovate and sell.
Product liability insurance covers an extensive range of risks and can benefit any company that deals with products. As a result, it is known as one of the most protective insurance in the product industry.