Product Liability Insurance

Written by Aaron Adam

Product liability insurance provides specialized liability protection from claims that may arise against manufacturers based on alleged negligence in the manufacture or packaging of products made by the insured.

Trends

Product liability lawsuits are extremely prevalent today, but have dipped from recent highs. According to industry experts, in 2007 product liability suits only made up about 12 percent of all cases in federal court, down from a record high of more than 20 percent the previous year. Legal experts say the drop off was the result of the winding down of many pharmaceutical product liability cases, which hit the legal system like a hurricane in 2006. The experts agree that it's only a matter of time before the next big trend in product litigation hits the courts, following the previous pattern of big product liability suit categories such as asbestos, drugs and medical products.

According to industry experts, the current recessionary economic environment is actually causing a mini-boom in the product liability insurance market as manufacturers, facing increased risk of defective products and errors because of reductions in manufacturing and quality control staff are upping their policy limits to limit their exposure to product liability suits.

Product liability lawsuits can result in massive judgments against manufacturers by courts. According to industry experts, the average payout in any product liability suit has topped $2 million, with larger suits averaging payouts in the billions. These judgments can result in insolvency for just about any business.

The very high likelihood that manufacturers of just about anything could eventually be hit with a product liability suit makes securing a product liability insurance policy a good idea for both big and small businesses. In fact, to provide compensation for widespread consumer injury, some jurisdictions actually require

What is product liability insurance?

Product liability insurance provides businesses with coverage from claims that involve the manufacture and/or sale of various products, including food and medicine to the public. This type of insurance provides manufacturers coverage from suits related to the 1987 Consumer Protection Act which holds manufacturers, distributors, retailers and others liable for products that are not "fit for purpose" and bodily injury or illness that may result from their unfitness to a third party. Claims for product liability suits can arise not just from the products manufacture, but also their labeling, warranties packaging, storage, handling and transportation.

Because of the wide net product liability law casts, it is advisable for anyone who puts their name or mark on a product to seek product liability coverage from a reputable insurer. The most common types of claims associated with product liability suits include negligence, breach of warranty, strict liability and consumer protection claims.

What does it cover?

Your product liability insurance policy will provide coverage for you against claims resulting from damage to property or personal injury that your products caused. It can also provide coverage against unforeseen circumstances, such as defects in your products that your quality control system may not be able to identify. This coverage should be available even if your business is negligent, subject to certain policy exclusions. Most polices include exclusions for intentional acts and deliberate wrongdoing, however.

The policy should take care of any judgments that may be entered against you up to the policy limit, and should also pay for the costs of defending any suit against you.

How much do I need?

The price of products liability coverage will vary depending on how much coverage you seek and how risky your business is determined to be by insurers. The industry standard for product liability insurance is a minimum of about $1 million in coverage. The typical product liability policy runs for about a year and can be renewed upon expiration. Perhaps your best bet in determining how much product liability insurance you need is to work with a product liability insurance broker. He or she will take a look at what you do and what the volume of your business is. Once this is evaluated, he or she can make a suggestion concerning how much coverage you need and help you find a policy at a competitive price.

While product liability insurance may seem unnecessary to small businesses, the potential for a lawsuit to clean out a manufacturer's assets is an excellent incentive for even small-scale manufacturers to obtain some product liability coverage.