Who Needs Product Liability Insurance?

July 18, 2019

If you manufacture, sell or distribute any kind of product, you probably need some kind of protection from product liability claims. 

What Does Product Liability Insurance Cover?

Product liability insurance protects the manufacturer, distributor or seller of a product from legal liability resulting from a defective condition that caused personal injury or damage associated with the use of the product. It is designed to protect your business from legal and court costs.

The kinds of costs incurred in defending a product liability claim can be extensive. They include defense, litigation and medical cost containment. In addition, there can be expenditures for surveillance, litigation management as well as fees for appraisers, private investigators, hearing representatives and fraud investigators.

Even if it is questionable whether insurance coverage applies in some cases, there can be considerable attorney legal fees owing to a duty to defend. Defense costs as a percentage of the total claim are relatively high in product liability insurance, reflecting the high cost of defending certain types of lawsuits, such as medical injury cases and class actions against pharmaceutical companies. In 2017, in addition to paying out $940 million in product liability damages, insurers spent $648 million in defense costs, equivalent to 68.9 percent of the losses.

A related insurance, product recall insurance, is designed to cover the costs associated with recalls, and is available from some insurers.

What Kinds of Businesses Need Product Liability Insurance?

Any small business that produces and sells a product should have this type of coverage, including:

•   Bakeries

•   Clothing stores

•   Florists

•   Restaurants

•   Gift shops

•   Wholesalers

•   Specialty food stores

•   Coffee shops

•   Pet stores

•   Print and copy shops


Keep in mind that product liability claims are not only a risk for business-to-consumer operations, but also business-to-business operations. If you produce a product that you sell to other business owners, you still need product liability insurance. Some of these businesses would include:

•   Software developers

•   Website creators/designers

•   Raw material suppliers

•   Equipment suppliers

Do I need Product Liability Insurance?

Travelers Insurance 2015 Business Risk Index showed that legal liability, including for incidents involving products, was the fourth-highest rated worry for business leaders in the United States, down from No. 3 a year earlier. Of 1,210 business leaders surveyed, 56 percent indicated they worry about it somewhat or a great deal.

Even if the products you manufacture, sell or distribute appear entirely safe, there’s always the potential for something to go wrong. Accidents happen. Claims of personal injury or property damage arising from product use (or product failure) can be expensive. Even if you’re not at fault, you may still incur considerable legal costs while defending yourself.

Most lawsuits are settled out of court. Of those that are tried and proceed to verdict, Jury Verdict Research data show that in 2013 the median, or midpoint, plaintiff award in personal injury cases was $68,218, down 9 percent from $75,000 in 2012; in California in 2018 the median was $114,305.

Stringent quality control and other risk management procedures are first and best defenses against product liability concerns, but insurance is an important component of a sound strategy

If you have a general liability policy, product liability insurance is covered in conjunction with liability for work that has been completed. This kind of coverage, which is included in bodily injury and property damage liability, is a combined piece of protection known as products-completed operations ability. Typically, when an insurance company issues a general liability policy to a business, it has taken into account its products liability exposure and is providing the products liability coverage deemed appropriate. However, depending on the nature of the products you make, sell or distribute, you may need more extensive products liability coverage.

Please contact us if you would like more information about products liability insurance and your business.