If your business manufactures or sells products (either as a distributor or retailer), you will be held responsible for any injuries or deaths allegedly caused by your products. History abounds with many cases of major product liability:
- In 1982, Johnson and Johnson had to spend over $100 million to recover its market share and reputation after seven people had allegedly died of cyanide poisoning after taking cyanide-contaminated Tylenol pain capsules produced by the company.
- In 2000, thousands of lawsuits were filed against Firestone as a result of deaths and injuries caused by defective tires produced by the company. The company was forced to recall and replace millions of tires.
- In 2009, the Peanut Corporation of America has many lawsuits filed against it for producing and shipping contaminated peanut products. Nine people died and a whopping 677 people became ill as a result of taking the contaminated product. Although the company is now bankrupt, many more lawsuits are still being expected.
- In 2011, 32 deaths and hundreds of illnesses resulted from the consumption of contaminated cantaloupe from Jensen Farms in Colorado, USA. Injured parties filed several lawsuits against the farm, their distributor, their food auditor, and their major buyers. The lawsuits were estimated to run upwards of hundreds of millions of dollars. Jensen has declared bankruptcy.
Defective product and product contamination issues are a concern for all types of businesses. Every year, there are millions of cases of illnesses resulting from adverse effects of products on consumers. This explains why millions or lawsuits are filed against manufacturing companies and their distributors every year.
If you own a business that produces or distributes consumer goods, you stand the risk of product liability. You may have put in place the best measures to ensure that the products you manufacture or sell are of high quality and are free of defects or contamination, but things could go wrong at times, leading to serious problems for your business.
When a product your company makes or sell is alleged to have caused deaths or illnesses, you will lose heavy amounts of money to payment of damages, and the reputation of your business will be soiled. It may not even be your company’s fault, but you still may be liable for the damages done.
How can you protect your business from this disaster? There’s only one answer: Product liability insurance.
Product liability insurance protects a business from claims related to the manufacture or sale of products, food, medicines, or other goods to the public. It covers the manufacturer’s or seller’s liability for losses or injuries to a buyer, user, or consumer caused by a defect, malfunction, or contamination of the product. Having discussed the importance of product liability insurance, let’s now look at the costs.
How Much Does Product Liability Insurance Cost
Product liability insurance costs vary according to the products you manufacture or sell, the volume of sales, where your organization fits in within the chain or commerce, geographical location, and so on. On the average, however, product liability insurance costs about 25 cents per $100 of retail costs.
So, if you manufacture or sell low-risk products such as yarns, dolls, or children’s toys, your product liability insurance costs will be much less than the average. But if you manufacture or sell dangerous items like guns, knives, fireworks, and so on, or products that could cause great bodily harm such as cars and some electronics, you will pay higher insurance costs and could even be denied coverage.
Even if you will be paying a high premium, purchasing a product liability insurance policy might still be worth it. If you can afford to protect your organization from going out of business suddenly, why would you not do that? If many of the companies that had gone bankrupt following product liability issues had insurance in place, perhaps they would still be in operation until this moment.
A smarter alternative is to obtain a general liability insurance policy for your business. This type of policy, if purchased from a reputable insurance company, could serve as a first line of defense against product liability claims. General liability insurance pays for losses due to property damage, injuries, or illness caused by the products or operations of a business, among other things. So, it combines product liability insurance with other benefits.
Most general liability policies provide coverage of up to $1 million for each loss that occurs and up to $2 million for all losses that occur in one year. This amount of coverage should suffice for your business. But it may not provide enough coverage if too many people fell ill or died after eating or using your product. You can extend your coverage to avoid this problem.