What does product liability insurance cover?
Product liability insurance covers three forms of potential liability related to your products:
- Design defects. The design of your product caused damages (financial or bodily injury) to a customer.
- Manufacturing defects. There is a defect in the manufacturing process that results in damages.
- Marketing defects. Marketing claims were inaccurate or required warnings were not sufficient.
If any of these forms of product deficiencies lead to consumer injury, illness, or property damage, your company could be exposed to legal action.
Injury caused by your product
In the event a product you sell, manufacture, or distribute causes injury, product liability insurance can help cover the resulting litigation expenses. If you are liable for a customer’s injury, the policy will likely cover settlement costs. This coverage extends past affected consumers and can also take care of expenses related to other affected third parties.
For example, if a manufacturer’s exercise equipment has an unseen defect and injures the buyer, your product liability insurance will help pay for the legal defense if they decide to bring a lawsuit against your business.
Illness caused by your product
If one of your products causes an illness to a consumer or other closely affected party, your product liability insurance coverage can protect against related lawsuits. For example, if a restaurant accidentally serves a customer food that has expired causing them to go to the emergency room, product liability insurance can help cover those costs if the customer files a lawsuit.
Property damage caused by your product
Product liability insurance can cover litigation costs due to damage done to a consumer’s property. For example, if a retailer sells a toy with a faulty battery pack that catches fire and the customer decides to sue the shop, a product liability insurance policy can help cover the legal defense costs.
What does product liability insurance NOT cover?
Product liability insurance will not cover everything product-related. It specifically covers lawsuits due to issues with products your business sells or produces. It does not cover costs regarding product recalls, damaged products, customer injuries (not product-related), or employee injuries.
If your business needs to recall a product, the cost of the recall is not covered by your product liability insurance. However, if a recalled product causes injury to a customer or damages their property, the policy will still protect your business from a resulting lawsuit.
There are additional product recall endorsements that can add recall protection to your product liability insurance policy.
When your products are damaged or lost, your business will need commercial property insurance to potentially pay for the replacement cost.
Customer injuries (not product related)
If a customer injures themselves while interacting with your business, like slipping while walking through your retail shop, you will require general liability insurance to cover medical and legal expenses that come from their injury.
Workers’ compensation insurance protects your business in the case of an employee injury. It can help pay for expenses like their medical bills, lost wages, rehabilitation, and legal fees. Even if an employee is injured due to your product, those costs would still fall under your workers’ compensation insurance.