How to protect your company from a defective product lawsuit
- Product liability insurance covers the cost of defending claims of personal injury or property damage caused by defective products.
- ANY business that is part of a product supply chain can be potentially named in a product liability lawsuit.
- Financial compensations are incredibly high and could cause financial ruin for businesses without product liability insurance.
- Product liability insurance coverage varies in scope and cost, but it is essential in protecting businesses from damaging lawsuits.
For many business owners, there is nothing more disheartening or concerning than a product causing harm to a consumer. While successful and safe products are always the goal, businesses need to prepare for the real possibilities of bringing a potentially defective product to market. A product liability lawsuit can be financially devastating for companies; product liability insurance can help mitigate the risk and protect a company from financial ruin.
What is product liability insurance?
Any business that sells any kind of product needs to consider product liability insurance. Death, injury, and loss from defective products can bankrupt businesses. Small businesses can be litigated out of existence with a single defective product lawsuit.
Essentially, product liability insurance protects a business from the financial impact of any litigation arising from the use of its products. This insurance covers the legal defense fees for company policyholders to fight any potential lawsuit and pays the settlement fees if the company in question is found negligent.
Insurance is essential to mitigate the business risk involved with product liability. However, there are multiple insurance products to consider.
Product liability insurance costs vary, depending on company size and the nature of the products made, sold, or distributed by a company. A risk profile of company products sold is often needed to determine insurance coverage and cost.
While some product liability is covered as part of a general liability policy, companies involved with riskier products, such as medical devices, need a stand-alone policy. Many insurance providers offer insurance riders with increased protection in exchange for higher premiums.
Some insurers offer Product Recall Endorsements to help companies pay for necessary product recalls. Large manufacturers often provide vendors with product liability insurance over and above their own policies. This additional coverage paid by manufacturers carries over to protect wholesalers and retailers who sell their manufactured products. It’s important to talk to an insurance professional to determine risk exposure within a company.
Product liability lawsuit payouts are always high
Product liability coverage applies to products as complex as an automobile and as simple as a cup of coffee. There are three main types of product liability claims, including:
- defectively manufactured products
- defectively designed products
- inadequate warnings and instructions
There is a tremendous legal recourse for harm caused by defective products. This harm can be in the form of injury, property damage, illness, or even wrongful death.
Financial compensations awarded to victims of product defects are among the highest in the legal field. Many major corporations have taken extensive financial hits from product liability lawsuits. For example:
- Philip Morris paid the price for its cancer-causing tobacco products
- General Motors delivered billions on account of its faulty ignition switches
- Chipotle dished-out millions for its foodborne illness outbreaks
The number of claims filed against large and small companies for design, marketing, and manufacturing defects is extensive and expensive. A losing defendant in a product liability case stands to pay for hospital and health care fees, lost earnings, mental anguish, plaintiff legal expenses, and much more.
Finding who’s to blame
If a customer perceives that a product they purchased harmed them, then anyone who helped make the product available to the public can be held accountable for the injuries, sickness, wrongful death, or property damage that occurred. Product liability is an issue for all the sellers of the product in the distribution chain.
What is strict liability?
Many businesses are required to abide by the Strict Liability Doctrine, which basically says that businesses are responsible for damages or injuries their products cause, even if they did nothing wrong.
Strict liability takes away any burden of proof that negligence exists from the plaintiff. If a plaintiff can prove that they were injured by a product, then they are not required by law to prove that the company was negligent in its provision. It assumes that businesses are in a better financial position to make the injured party whole again. As a result, strict liability makes running a business much riskier, and getting product liability coverage a priority.
Strict liability law differs from state to state.
If you are a plaintiff living in Alabama, the District of Columbia, Maryland, North Carolina, or Virginia, then you are not entitled to claim damages if it can be proven that you’ve been even 1% negligent in the product usage. This is called the pure contributory negligence rule, and it allows businesses in these five states to be slightly more relaxed about product liability insurance.
In every other state, payouts can be decided based on shared negligence, if any exists. The degree to which the defendant is found responsible determines the damages paid. This is the legal procedure in Florida.
Don’t look away from liability
Companies need to be aware of the tremendous impact of product liability claims and treat them as a real possibility. Companies are not helpless; they can mitigate the likelihood of liability issues. In doing so, businesses can negotiate lower insurance costs with their providers. Best practices to minimize product liability insurance costs include the following:
- Adhere to strict quality controls and processes
Make sure to use careful design, consistency, and high-quality raw materials in all products. Regularly inspect and clean work areas and equipment. Make equipment repairs when needed.
- Administer thorough testing
Testing helps to catch any products that present risks. Write detailed product instructions and label products with precise information about the contents and methods of use. Also, evaluate high-impact risks, such as fire hazards or physical injury dangers.
- Be reactive and decisive
If product liability issues do arise, help to cap further liability by putting a swift and expansive product recall into action. Inventory tracking implementation must be utilized in the event of a recall.
- Stay informed
Make sure to stay up to date on any regulations and current laws impacting businesses or a particular industry. Be as aware as possible about every stage of the distribution chain; scour company reviews and research all manufacturers before any collaboration.
- Keep great financial records
Know your gross sales, as they are what determines insurance premiums. Also, have a grasp of your overall financials so that you can balance insurance protection versus cost.
Products are required to meet consumer expectations. When products fail to meet this standard and cause harm, companies can and will be held accountable. Claimants can sue any businesses in the supply chain of distribution.
Businesses can take steps to reduce risks with safety measures and in-house product development protocols, and they can take out insurance policies to help absorb the financial impact of product liability claims that occur. If you are a manufacturer, seller, or distributor, it’s in your best interest to seriously consider product liability insurance.
Have questions about product liability insurance?
Product liability insurance is a complex issue to navigate. Premiums differ based on the business sector, location, and product. For some businesses, the product liability coverage offered in their general liability insurance policy is enough protection against claims.
To obtain peace of mind and determine that your business is fully protected and not over-insured, contact a qualified insurer who can help you examine your company’s needs.
Avante Insurance is a South Florida family-owned and operated insurance agency serving various insurance services to meet customer’s individual needs. If you’d like to know more about product liability insurance, you can call us at 305-648-7070. Request an insurance quote or contact us with any questions or comments. Our professionals can help you feel confident about your product liability insurance coverage.