What does product liability mean? Liability refers to the legal responsibility someone has over something else. Liability means you have a legal obligation over your property, your service, and any products that you sell in your business. Whether you sell a product in a brick-and-mortar store or online, you are responsible for the liability risks associated with that product.
What Claims Does Product Liability Insurance Protect Your Business From?
As a small business owner, you want to protect yourself from liability risks and lawsuits by keeping your product liability insurance up to date. The last thing you need is for an unexpected lawsuit to come along and derail your business plans. Your business doesn’t even need to do anything wrong for a liability claim to be filed, but your product liability insurance will help mitigate the costs associated with claims either way.
Some of the most common reasons why consumers file liability claims include:
- A product that causes bodily harm or injury. A famous example of this was the McDonald’s Hot Coffee case where a 70-year old woman suffered severe burns when she accidentally spilled coffee in her lap. Her lawyer argued that the coffee was served at an extremely hot temperature, hotter than other restaurants, making it impossible to drink safely. The customer won the case, and as a result, most businesses include warning labels on all their hot beverage containers.
- A product that causes property damage. An example would be an electronic item that catches fire while charging or a car washing product that peels off car paint.This could be the result of a design or manufacturing defect and is the legal responsibility of your business. There might be nothing wrong with your product, but a customer may use it incorrectly. Regardless, your insurance will help protect you in a case like that.
- Sickness caused by food or beverage. Think of all the food recalls that happen in grocery stores or incidents of food poisoning in restaurants. This can result from food that was contaminated before packaging and distribution, products that failed to label allergens or expiration dates clearly, or food that was prepared incorrectly.
All these scenarios are incidents wherein the company could be liable for the damages. Insurance will help your business mitigate the associated legal costs.
You might have the most fantastic product on the market. Its design might be flawless, there might not be any defect in the production or assembly, and when used correctly, it works wonderfully. You might have hundreds, maybe even thousands of raving reviews. However, lawsuits for product liability are becoming more and more common. Sometimes all it takes is one person to misuse your product and sustain some sort of damage from it. Product liability insurance protects you from the legal and other costs associated with such a claim.
Also note that in the worst-case scenario where your product has a design defect or is contaminated, you should first and foremost start a product recall to prevent harm to customers and limit the possibility of legal cases and bad publicity.
Product Liability vs. General Liability
Many customers ask our brokers about whether they need product liability, general liability, or both. Essentially, product liability is your legal responsibility for the product your business creates and sells.
Most business owners should also have general liability insurance, which protects your business from claims of:
- Bodily injury – This happens when a customer injures themself at your business, maybe by slipping on ice in your driveway or tripping over a cord in your store.
- Property damage – This can happen if you damage a customer’s property while providing a service or delivering a product on their property. This can look like anything from a roadside mailbox knocked over by your vehicle to a broken window while cleaning eavestroughs.
- Advertising injury – This refers to harm caused to a business or person as a result of advertising. For example, if your business advertises it is superior to another business, that company can accuse you of defamation. That’s why you’ll notice in big brand commercials they never explicitly name their competition, but they allude to whom it might be.
- Copyright infringement – This may occur if your business is accused of violating copyright laws, such as using an image in an advertisement without owning the right to use it or getting permission from the creator.
- Reputational harm – If you make a claim regarding another business or person that negatively impacts them, they can accuse your business of defamation.
Businesses (both small and large) should have both general and product liability insurance if they want their business to be protected from potential liability claims, whether they seem justified or not. It’s always better to have extra protection for your business than not enough. The more successful and popular your business becomes, the higher your risk for liability will be.
If you are a service-based business, you may not require product liability insurance. However, you could benefit from an errors and omissions policy or other industry-specific policies.
Do I Need Product Liability Insurance?
If you own a business that makes a product, you should have product liability insurance. Why? Because under Canadian law (and many other countries’ laws) you are legally responsible for your product. The three most common causes of product problems are:
- Design defects in the product.
- Manufacturing defects, including wrong manufacturing, wrong assemblage, or missing pieces and parts.
- Marketing defects, including missing or incorrect instructions, missing labels for hazards, allergens, age restrictions, etc.
Anyone who sells a product is at risk of liability claims. Insurance is suitable for both business-to-customer models and business-to-business models. Even online products can be at risk; if you sell software, create or design materials or digital content, supply raw materials or equipment, your business will also benefit from product liability insurance. The coverage can be the difference between your company weathering the storm brought on by a liability claim and going under because of it.
How Do I Get Product Liability Insurance in Edmonton, Alberta?
If you sell a product and don’t have a product or general liability insurance yet, talk to your insurance broker about your needs and budget. If you’re in the Edmonton area, call our office; we’ll be happy to discuss the best options for your business.
Liability insurance is just one part of business insurance options. Depending on your line of work, you may also require commercial building insurance, fleet insurance, errors and omissions, commercial auto insurance, or professional liability insurance. Our insurance brokers at Cornerstone Insurance are happy to answer all of your business insurance questions or concerns. We can help you determine which insurance policies will best cover your business, so you can be confident in your operations. We can also bundle your insurance as part of a comprehensive business insurance policy to better suit your budget and keep you organized.
