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Does your business need product liability insurance?
If your business sells, produces, or distributes at least one product, you more than likely have exposure to product liability claims. If your product harms a user or they claim it damages their property, your business could be financially responsible for damages. Most companies have the potential to end up in a product liability lawsuit, however, more common industries that should consider a product liability insurance policy are retailers, manufacturers, wholesalers, distributors, restaurants, and dealerships.
Companies with high-quality products can still run into issues. Even if your approach is exemplary, there is still potential for a product liability claim. The most common claims that occur are for marketing defects, design defects, and manufacturing defects.
Does product liability insurance cover software or cyber problems?
In most cases, product liability insurance will not cover software or cyber troubles. If a client brings a lawsuit due to software, applications, or other technical services, your business will need either a professional liability insurance or technology liability insurance policy. Depending on the conditions, these policies provide coverage when a customer feels your technology has caused them financial harm.
With issues involving damages from data breaches or cyber-attacks, your business will need a cyber liability insurance policy to be covered. The differences between these policies are that technology liability insurance protects against financial losses from failed software, while cyber liability insurance protects against expenses from exposed customer data or ransom attacks.
What does product liability insurance cover?
Product liability insurance covers three forms of potential liability related to your products:
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.
How much does product liability insurance cost?
Generally, carriers will bundle product liability insurance with your general liability insurance policy. In scenarios where it is not bundled, there are various factors that can change the cost of monthly premiums. Carriers will consider factors like product type, revenue from sold products, manufacturing terms, claim history, and location.
Some products are naturally riskier than others. If a product type is more likely to cause damage or injury it will be more expensive to insure. For example, a company that designs clothes is much less likely to be involved in a product lawsuit compared to a bio-engineering company.
Revenue from sold products
A large portion of product liability insurance pricing is based on how much revenue your business is generating from product sales. The more product sales you make, the more coverage is needed.
High-quality manufacturing facilities with established manufacturing principles typically produce products that are less prone to malfunctioning.
Past claims can sometimes (not always) impact policy offers. If there have been frequent claims in a short period of time, this may adversely impact the cost of insurance and potentially make it difficult to insure the exposure.
The locations where you operate your business will impact insurance costs. States with more strict regulations and less favorable litigation environments can lead to increased costs.
Does product liability insurance cover frivolous lawsuit expenses?
Yes, product liability insurance will cover lawsuit expenses related to frivolous litigation attempts. It does not matter if the party claiming your product caused an injury does not have significant proof. This kind of lawsuit can still generate enormous legal expenses. Even if litigation does not make it to court, a product liability insurance policy can help cover most legal defense costs.
Does product liability insurance cover product recalls?
Product liability insurance will not cover the cost to recall a product, although it can still help cover legal defense expenses after a product recall that occurs due to injured customers or damaged property. If your business wants to be protected in case of a product recall, there are product recall endorsements that provide additional protection.
How do I make a product liability insurance claim?
Most carriers have online claim reporting capabilities, or you can call their toll-free claims reporting phone number. At Winooski Insurance Agency, we are always available to assist you through the claim reporting process. Our clients can rest easy knowing our experienced agents are ready to help when needed.
View a list of our partner carriers and instructions on where to file a claim with each.
Why should I get product liability insurance through an independent agency?
Winooski Insurance has been an independent insurance agency for almost 40 years. During this time, we have created long-term relationships with a multitude of insurance partners which allows us to present you with a broad range of coverage options at competitive rates. We’re committed to helping you address your unique requirements.
“ The level of service and professionalism I’ve received from Jeff and the experienced professionals at Winooski Insurance is unparalleled. I’m grateful to have been referred to Winooski Insurance and truly feel like I have a business partner, not just an insurance company. ”
Cherian Philip, CFO
“ The entire team at Winooski Insurance have done an outstanding job of providing insurance coverage for my company. This is not always easy, as each project has to be reviewed by Winooski Insurance to verify that we have the required coverages. ”
David Bogue, President
Professional Construction Inc.
“ I have personally and professionally used Winooski Insurance for over 15 years. The staff is efficient, the service is excellent, and they work hard to keep the premiums low. I highly recommend Winooski Insurance! ”
Mark Chaffee, Senior Loan Officer
Draper and Kramer Mortgage Corp.