Products Liability Insurance
DO YOU NEED PRODUCTS LIABILITY INSURANCE?
The purpose of this article is to better educate insurance buyers on the importance of having products liability insurance coverage as part of their overall General Liability insurance program.
In order to better evaluate your company’s overall product liability risk exposure I think it’s important to understand a few key items.
· Products liability insurance (sometime referred to as Manufacturers Insurance) is just one aspect of a company’s overall insurance program that sometimes gets overlooked.
· Products liability is often overlooked due to the fact that many companies don’t understand/believe they have exposure to products liability claims “since they are not the original manufacturer”, or, better yet, they don’t know that their current program is excluding products liability, which is all too common in this ever increasing complex insurance environment. (CG 21 04 – Exclusion _ Products – Completed Operations).
· General Liability Insurance (excluding products liability) is intended to protect your company for any 3rd party liability brought against you arising out of your premise/operations (on-site). The real question is what happens if your company is brought into suit for any 3rd party property damage or bodily injury off-site?
What is Products Liability Insurance?
Products liability insurance protects the business from claims related to the manufacture or sale of products, food, medicines or other goods to public. It covers the manufacturer’s/ sellers liability for bodily injury or property losses caused by their negligence. Their negligence can take the form of dangerous defects in the product or even sometimes failure to warn the public if its inherent risk factors. It is important to note that damage to the product itself is not included in the coverage. Sometimes, when it’s part of a commercial general liability policy, the coverage is also referred to as Products-Completed Operations insurance.
There are generally three types of products liability insurance claims a company may face:
· Manufacturing/Production Flaws – Bodily injury or property damage ensues from a product that was flawed during manufacture;
· Overall Design Defect- The product’s original design is unsafe, and people are injured or property is damaged as a result;
· Defective Warnings/Instructions – An injured party alleges that the product instructions and warnings supplied to consumers were inadequate for them to understand the risks involved in using it.
The damages awarded in any one of these claims can be serious enough to ruin a business’s reputation and even put them out of business. It is important to note that the coverage only responds to bodily injury or property damage, and does not extend to financial damages where no bodily injury or property damage occurs.
Many wholesalers/resellers fail to secure this coverage. Their logic is that since they didn’t “manufacture” anything, they don’t need the coverage. Often times retailers and wholesalers (along with the manufacturers) are brought into a lawsuit for alleged negligence by the consumer. Most states follow the “stream of commerce” model of liability, meaning that if your company participated in placing the product into the “stream of commerce”, it can be held liable.
As a business professional, you understand there are many things that can happen in the course of your daily operations for which you could be held liable, and that you don’t even have to be at fault to be sued.
If your company provides any products to the consuming public, you need product liability coverage. Don’t assume it’s already included in your standard General Liability Program. Please check with your insurance professional to get a clear understanding of what exactly is covered (and what is not) for the insurance premiums you are paying.
CNA Risk Management Best Practices Products_Liability.pdf
Intro to Product Liabiltiy Law by Denis Stearns.pdf