Could Your Business be Sued by Consumers?
Make sure your policy has your products covered.
Product Liability Insurance protects a business from lawsuits alleging negligence associated with the manufacturing, selling, or redistribution of a product marketed to the public. If your company markets any type of product, even if the product is manufactured or resold by another business, your business should make sure it has this important insurance coverage, and discuss with an insurance advisor about how much coverage your business may need based on the type of product your business sells and the estimated annual sales volume.
In many states, lawsuits will incorporate the legal standard known as the “stream of commerce”, which means that any company that participates in the process of bringing a product to market can be held directly or vicariously liable for any defect in that product and the subsequent liability. Because of this standard, businesses that are engaged in product sales or distribution must consider how even one product liability lawsuit could result in severe economic harm and potential bankruptcy.
Product Liability lawsuits typically result from either a design defect, production flaw, or error in the product's warnings or instructions. In recent cases, US based businesses have been held strictly liable for redistributing products that were manufactured in foreign countries and produced with toxic or hazardous chemicals such as mercury or formaldehyde. Businesses that sell food or perishable products are exposed to food poisoning suits, disease and allergy, and spoilage of stock. You may have heard of US based auto manufacturers with vehicles or parts that have been recalled due to faulty assembly. Other product liability suits arise out of the insufficient warnings on a product's packaging, or an unsuitable guarantee on a product. In any event, even businesses that sell or distribute sound products are exposed to frivolous lawsuits that can cost hundreds of thousands of dollars in defense costs.
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While product liability coverage can often be included in a General Liability or Business Owner’s policy, in some cases this coverage is specifically excluded for businesses with heightened exposure. Policies that do include product liability coverage may only provide insurance for economic damages, and exclude coverage for statutory or punitive damages. Beware of insurance companies that limit your business’ product liability coverage. Boynton Insurance Group has specialists who can help you digest the complicated language in your policy and explain any gaps in your business’ insurance coverage.