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Product Liability Insurance

Product liability insurance provides your manufacturing or retail business protection in case of an incident of property damage or bodily injury caused by a product. Coverage includes defects, faults in design, damaged goods or tampered items that can cause harm or violate their intended use.
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Who Should Buy Product Liability Insurance

If you're a business owner, you're responsible for every product you import, manufacture, distribute or sell. Product liability lawsuits can be expensive, stressful and time-consuming—not to mention that they can destroy trust with your client base and ruin your brand reputation. Product liability insurance is a necessity for all businesses involved throughout the commerce chain, including anyone who sells, manufactures or distributes a product—including food products. 

Products can cause physical injury, property damage and economic losses for consumers who use them. This can result in product liability lawsuits. For example, a person who gets severe food poisoning because of a food product you produce could wind up in the hospital and incur medical costs. Likewise, faulty laundry detergent might damage a consumer's clothing. If you produce mechanical parts for cars, trains or airplanes, faulty products could cause serious harm, injury or even a fatality. 

And, it's not just manufacturers who need product liability insurance. Perhaps you didn’t manufacture that faulty laundry detergent, but if you sell it in your store you could also be liable. This can result in devastating financial losses—especially if you don't have the appropriate coverage. 

Guard your company against such high costs with product liability insurance. Usually, this coverage forms part of a standard commercial general liability policy. But, depending on the type of product you produce or sell, you may need additional product liability coverage. A qualified Krywolt Insurance broker will be able to let you know whether your business requires a standalone policy or not.  

Examples of Small Businesses Who Need Product Liability Insurance:

  • Bakeries
  • Clothing stores
  • Jewellery stores
  • Florists
  • Restaurants
  • Gift shops
  • Wholesalers
  • Specialty food stores
  • Coffee shops
  • Pet stores
  • Print and copy shops

It's important to keep in mind that it's not only B2C (business to consumer) enterprises that can wind up facing a lawsuit should there be an issue with a product you make/sell/distribute. B2B (business to business) industries face the same risks as any other product-related industry.

Examples of B2B Businesses Who Need Product Liability Insurance Policies:

  • Software developers
  • Website creators/designers
  • Raw material suppliers
  • Equipment suppliers

What Does Product Liability Coverage Include?

Product liability insurance protects your business against legal liability for claims of bodily injury and property damages arising from a product defect. This could range from a severe allergic reaction to jewellery that was sold as hypoallergenic or a frozen pizza that gave a consumer severe food poisoning, to a vacuum that ruins a customer's carpet. With product liability coverage, your business is protected from legal action, legal costs and compensatory damages.  

  • Design Defects: Should you sell a product with a design flaw—permitting the defect existed before the product was made— then you'll be protected from dissatisfied customers inclined to sue.
  • Manufacturing Defects: Even if you're not the manufacturer, if you sell a product that has a defect that occurred while it was being made, you could still find yourself in trouble for selling a defective product.
  • Strict Liability: It's possible that a customer could get hurt by a manufacturer's product, even if the business is not found negligent. Unfortunately, strict liability stipulates that you could still be found legally liable—even if the cause of injury is not your fault.  
  • Improper Warning: Failing to warn a consumer about how to properly use a product can also result in a lawsuit over property damage or personal injury. 
  • Marketing Defects: Misleading or incorrect labelling may result in serious legal trouble. It's important to verify claims made on the product and comply with local advertising regulations. 

Product Liability Risk Management Tips

Anytime you're working as part of the commerce chain—including producing, importing or selling products—you need to have a risk management plan that helps to reduce product liability claims by carefully considering product safety and any risks associated with the product. This will also help strengthen your businesses' defense position in the event of legal trouble because of a product defect or improper warning. 

Consider the Following:

  • Ensure you have a comprehensive quality control, safety, and product recall plan
  • Check that all members of your distribution chain have adequate insurance—including suppliers, manufacturers and distributors. 
  • If you import products, verify that they comply with Alberta industry standards, government regulations and are appropriately labelled
  • Have documentation illustrating the quality control steps you've taken, in the event you are ever in a legal dispute 
  • When drawing up contracts regarding your product, always work with legal counsel that specializes in product liability
  • Listen to your customers, which is incredibly important in trouble shooting complaints and service warranty issues

Product Liability Insurance Coverage Options

Product liability insurance is key for protecting your business from legal expenses should you wind up in a lawsuit because of a product issue—regardless of where your business falls on the supply chain. However, there is a wide range of additional insurance coverage options that you should consider as part of your business insurance. The following coverages will help protect you against third-party claims, financial losses and damage to your property—all of which could seriously impact your business operations. 

  • Commercial General Liability Insurance: Also known as CGL, this coverage is designed to protect you and your business from a loss if you're found legally liable for bodily injuries or property damage to a third-party caused by the product you sell or service you provide. Commercial general liability insurance can also help protect you and your employees while conducting business away from your usual place of operation. 
  • Cyber Risk and Data Breach Coverage: Protect valuable assets, financial information and confidential client information from cyber attacks with cyber risk and data breach coverage.  
  • Professional Liability: Also known as errors and omission insurance, this coverage helps protect you in the event a client makes a claim that your professional services or advice caused them a financial loss. This coverage will help protect you in the event the accusation gets taken to court. 
  • Commercial Property Insurance: You rely on your business property as your headquarters or your brick-and-mortar place of operations. Protect it from property damage losses by including commercial property insurance in your business insurance policy. 
  • Equipment Breakdown Insurance: Typically, your equipment is covered in your property insurance policy for damage caused by external sources, such as fires, floods and other extreme weather events. But you might not be covered for electrical or mechanical damage caused internally. If equipment is a key aspect of your business, protect it with equipment breakdown insurance.  

Commercial Auto Insurance: If you use a vehicle for business purposes, such as dropping off deliveries or driving to meet clients frequently, it's important your vehicle is adequately protected with commercial auto insurance.

Frequently Asked Questions

What are the “Limits” on a Product Liability Insurance Policy?

The limits on product liability insurance will vary depending on whether you decide to get basic coverage or opt for advanced coverage. However, typically the limits on a product liability insurance policy ranges between $1,000,000 and $5,000,000. Usually, this policy's limit is part of a general liability insurance policy’s limit. 

How Do I Know if I Have the Right Product Liability Insurance Policy?

While a qualified broker at Krywolt Insurance will be able to ascertain your business' unique coverage needs and help you choose the right policy for you, it's important that you opt for a product liability insurance policy that:

  • Protects your business from bankruptcy 
  • Will protect you financially from the cost of replacing the defective, tampered product
  • Includes shipping, advertising and promotional expenses
  • Includes the cost of disposing of any defective products
  • Incorporates the cost of business disruption
  • Pays any fees to wholesalers, retailers and agents 
  • Helps your company repair its reputation after a lawsuit 

What Factors Impact Product Liability Insurance?

The primary factor that determines your product liability insurance cost is the amount of potential danger associated with your goods. If you work in a high-risk industry, your costs will naturally be more. However, there are other factors that influence your insurance premiums, including:

  • Policy limits
  • Your insurance claims history
  • Type of products 
  • Number of units sold
  • Annual and projected revenue
  • Size of distribution
  • Industry and company size
  • Factors related to shipping, storage, packaging, safety measures in place etc.

Is Product Liability Insurance Legally Mandatory for Retail and E-Commerce Stores?

No. In most industries, product liability insurance is not mandatory. That said, it's strongly recommended, especially if you sell, produce or distribute products that could easily result in claims against you—such as in the cosmetic and food industries. For instance, skin creams can lead to reactions and food items may cause food poisoning. 

What is the Difference Between Product Liability Insurance and General Liability Insurance?

Product liability insurance is essentially more focused than general liability insurance, as it only extends to damages being caused by a product you sold or manufactured. Alternatively, general liability provides protection for a wide range of instances where a third-party's property is damaged or is physically harmed on your premises. 

For instance, if your employee is mopping and a customer slips and falls, the subsequent insurance claim would be covered by general liability. But if a customer uses your product and has an allergic reaction, that would be covered by product liability. 

Do All Companies Need Product Liability Insurance?

If you sell, distribute, import or manufacture any type of goods—including food, clothing or technology—then you should have this coverage. It will protect your company in the event of legal action stemming from defective or faulty products. 

Does Product Liability Insurance Cover Problems with Software or an App?

This depends; coding mistakes and software errors may cause a business' operations to be affected—in which case you should have a professional liability/errors and omissions insurance policy; whereas product liability protects you against a customer who experienced physical harm because of your product. An example of this would be an exploding battery or faulty wiring leading to electrical shock. 

How Much Product Liability Insurance Does Your Small Business Need?

How much coverage you decide to buy depends on:

  • What product you sell or produce
  • How many products you sell or produce
  • The volume of sales
  • The number of parties involved in production

Typically, the more output the greater likelihood one of the products you make or sell will be defective. As your small business grows, you may have to adjust your policy for your changing needs. 

Why is Product Liability Insurance for Small Businesses Important?

If your business produces or sells products to customers, there is a chance your product could have a defect that causes injuries or damages a third-party's property. Without a proper product liability insurance policy, you'll be forced to pay out-of-pocket for:

  • The customer's medical costs to treat their injury
  • Legal fees and costs to defend your company
  • Settlements or compensations made against your company

What is Not Covered by Product Liability Insurance?

The only coverage provided by a product liability policy is for property damages or bodily injuries to a third-party caused by a product you sell or manufacture. Anything else, such as slip-and-fall injuries, financial loss from professional advice, or damage to your business itself, are covered with different insurance policies including general liability, professional liability and commercial property coverage.

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You need an insurance expert that understands Product Liability Insurance to be able to define all the possible risks associated with your business so you get the best possible coverage to ensure that a single simple accident or oversight doesn’t overcome your business. You know your business, we know the risks and the ways to protect your business from potentially crippling law suits or loss.

We don’t offer instant online quotes for Product Liability Insurance because there is no way we can get to know you and your business without speaking to you and coming to understand all the complexities or simple processes that need to be insured.
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