How does Product liability insurance works? What are its benefits and why should a small business buy product liability insurance? If you seek answers to any of the questions above, then i advice you read on. Product liability insurance is designed to protect business owners against liability claims stemming from injuries and losses suffered from consuming of their products.

Product liability insurance can be obtained by manufacturing companies, food and beverage companies, drug manufacturing companies, construction companies and any company that engages in selling or manufacturing products for public use and consumption. The law is generally sympathetic towards consumers nowadays and a lot of people have won law suits worth millions of dollars in liability compensation hence, consumers do not hesitate to file law suits when they suffer losses or damages.

Product liability claims may also arise as a result of false or misleading advertisement. If a company, in a bid to gain more patronage, decides to ‘hype’ its products and it is eventually discovered by the consumers, they may sue and if the company is found guilty, they would be asked to compensate the consumers.

Product liability insurance wasn’t popular about one or two decades ago but now, every manufacturer, wholesaler and retailer is encouraged to get one because you can never be too certain about the safety of your goods. Some of the product liability claims made against business owners include:

4 Examples of Product Liability Claims You Must Protect Yourself Against

Let’s take food and drugs for instance. Because of how our bodies respond to these two items, manufacturers are presented with strict health and safety rules, procedures and techniques that they must follow in order to protect their consumers but if an error occurs during production, storage or handling and the items are exposed to harmful and poisonous substances, then the company would be held responsible for whatever happens to consumers of the product.

  • Design Flaws

Production companies can also be held liable if their designs or any component of such designs are deemed dangerous or unsafe. Let’s take electronics as an example; if the manufacturer of a refrigerator uses some faulty components for production and then a consumer is exposed to electrical dangers as a result, the company would he held liable.

  • Inadequate Instructions

Products are expected to come with manuals that would spell out any potential risks and dangers associated with their use. Manufacturers are also expected to give adequate instructions for usage of the products and failure to do so may cause them to be held liable for damages to consumers.

  • Stream of Commerce liability

Many business owners think that product liability is only for the manufacturers and producers but it is not so. Retailers and wholesalers may also be held liable for damages because of their participation in placing the products in the stream of commerce.

This means that your business also partook in distribution and sales of the product and would be held responsible for damage to consumers. Wholesalers and distributors may also be held liable if they altered the product design or performed any alterations to the original products.

When you have product liability insurance, your company would take care of the following-:

6 Ways Product Liability Insurance Can Save your Company

  • Medical expenses

In case of physical injuries, your insurance company would take care of medical bills incurred by the injured.

  • Compensation

Sometimes when such accidents happen to consumers of your products, you would not want it to go as far as being sued because of what it may do to the image of your company. In this case, you would prefer to settle out of court and compensate the consumers instead. Your insurance company would be expected to foot the bill in this case.

  • Punitive damages

Some rather difficult consumers may refuse to settle out of court or insist on ridiculous terms that you cannot meet up with, forcing you to proceed to court. In this case, if the court eventually finds your company guilty, some compensation would be awarded to the complainant.

  • Economic Losses

There may be some interruptions in business during the period of the law suit and investigation which may lead to a reduction of revenue and eventually profits. Once again, the insurance company would take care of these fees.

  • Attorney’s fees

You would need an attorney to defend you in court and attorney’s fees don’t come cheap, so your insurance company would take care of these fees too.

  • Social losses

Also, liability cases may lead to bad image for your business and may lead customers to boycott your products. In this case, you would need to embark on some restoration campaign to rebuild the image of your business and you would need funds to this which your insurance company would also provide.

To determine your premiums for product liability insurance, the insurance company would take a look at some of the following factors-:

  • The type of product you manufacture
  • Your level of quality control and risk management
  • Adherence to safety and health rules and regulations
  • Volume of sales

How to Handle Product Liability Claims

For settlement of product liability claims, the claimant would have to figure out all the parties that are responsible for the injury from the manufacturer down to the retailer. Then he would also be expected to estimate the extent of his injury and future losses as a result of the injury like loss of wages, psychological and emotional distress, medical expenses and all other bills that he may incur in the future. If the damage results in death, the dependents of the deceased may take the position of the claimant.

The claimant might choose to contact the company directly or through his lawyer. When this happens, the company should inform the insurance company immediately and avoid accepting responsibility for damages. This may lead to a forfeiture of the insurance coverage.

Companies should also ensure that customer service representatives are adequately trained to handle product liability claims because they are likely to be the first person the claimant contacts and the way and manner they handle the complaints can help to save the company from liability. Companies should also ensure that they produce their goods with strict adherence to rules and regulations without compromising standards and also ensure that they perform adequate quality control and never fail to recall suspicious or defected products.

Ajaero Tony Martins