How does product liability insurance protect against defective products?

When your business centers on goods for consumers, a defective product can devastate your company. Though your first concern is the damage done to the customer, you also have to worry about the impact on your business's reputation and finances.

Your general liability policy most likely includes product liability coverage that can help you recover, but the goal is to avoid problems when possible. That means you need to keep an eye out for defective products before they hit the market.

Typically, defective product claims fall into one of three categories:

• Design defects
• Manufacturer defects
• Marketing defects

This primer takes you through each type so you can identify potential risks.

If bad design renders a product unsafe, even buyers who follow the product’s instructions perfectly are at risk.

If someone suspects that your product has a design defect, they must prove they were using the product correctly, show how it caused damage, and identify the flaw. Some states also ask the user to present a reasonable, affordable, and functional alternative to the flawed design.

Example: A trucking company notices that a certain model of vehicle often rolls over on sharp corners. When it looks into the issue, it discovers that the model has a design flaw that makes the vehicle top heavy. The company sues the automaker, who pays for legal fees and damages with product liability insurance.

Sometimes, a product flaw originates in the manufacturing process.

A product may have a manufacturer defect if the manufacturer deviates from the product design, uses the wrong parts, assembles the product incorrectly, or allows hazardous materials to contaminate the product. These defects are usually contained to a specific batch of products that originate from the same factory or workshop.

Example: A skincare product inexplicably begins to cause rashes in a handful of customers. These customers sue the skincare brand, which soon discovers that a batch of products from a specific assembly plant was contaminated with allergens. The skincare brand and manufacturer pay for legal fees and damages with product liability insurance.

A product has a marketing defect when insufficient instructions, improper labels, or inadequate warnings cause user error. This type of defect is also called a failure to warn defect.

If someone suspects that your product has a marketing defect, they need to identify the flaw and show how it led to damage.

Example: A customer assembles a couch incorrectly based on an error in the assembly instructions. The couch collapses unexpectedly, endangering the customer, who files a lawsuit against the furniture company. The furniture company turns to product liability insurance to cover legal fees and damages.

Any business involved in bringing a product to market can be sued for product liability, including:

• Designers
• Product manufacturers
• Component parts manufacturers
• Wholesalers
• Retailers

Keep in mind that the term "product" can be applied to many items, including fuel, pets, real estate, and a written product like a map.

Product liability coverage is often included in general liability insurance. Complete Insureon’s easy online application today to compare quotes for general liability insurance and other policies from top-rated U.S. companies. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.