Does your business manufacture, sell, or distribute products? If so, you are susceptible to a product liability suit. Increasingly, consumers are bringing liability suits, and the awards are high. These days, you need product liability insurance.
Product liability insurance is a business policy that protects your company against claims for loss or injury due to defects or to the failure to provide proper warning about your products. It covers legal fees, medical costs, and awarded damages.
Product claims cover a broad spectrum, but most boil down to a few basic issues. Complaints against your products typically come in one of three forms:
- Manufacturing or production flaw: This claim asserts that your production process resulted in a defect that makes the product unsafe.
- Design defect: The product design itself is said to be unsafe.
- Defective warning or instruction: This charge claims that your labels provided insufficient warning regarding risk.
It is important to realize that your business will be held responsible for a loss or injury, even if you didn’t manufacture the product. If you were part of the process of placing the product in the consumer’s possession, you can be held legally liable.
The coverage each business needs will vary greatly. It depends on many factors, such as the size and scope of your business, your industry, your location, and the products you produce. These factors will affect the policy terms as well as the cost of coverage.
To ensure your coverage is appropriate, provide detailed information on your business to your insurance provider. Be forewarned: some companies have underreported to save on their premiums and, as a result, have incurred penalties or found they had too little coverage.
Keep costs low by minimizing your risk. This will result in fewer claims and lower premiums. Ensure your manufacturing processes are safe, and maintain detailed records of your procedures. Test products thoroughly. Establish a quality assurance program. Keep accurate logs for all of your processes. If you use any third-party products, request and file warranties for everything.
Maintaining these high standards of safety will demonstrate to your customers and your employees that you adhere to reliable business practices and a type of goodwill that’s priceless from the perspective of today’s engaged consumers.
The business world is a dynamic environment. Your manufacturing operations, sales processes, and products are likely to change over time. It’s wise to review your product liability coverage at least once a year. Consult with your insurance provider to see whether you should change any terms in your policy, including the limits; you may outgrow your policy as your business expands. Be sure to communicate regularly with your agent to keep your policy current with your business needs.
Planning for the future
These best business practices cannot guarantee your business will be lawsuit-free. However, they will provide the best protection possible should you ever face a claim. This allows you to operate without constantly worrying about legal disasters, and will free you to focus on other business opportunities, company growth, and your business’s continued success.