The Importance of a Good Product Liability Policy
You might be at more risk than you think if you aren’t sure whether or not you need product liability insurance for your company.
From one-man operations to extensive start-ups, chances are you can benefit from the additional protection provided by product liability insurance.
The following is a rundown on product liability protection and the different kinds of policies that are available.
Product Liability Protection 101
A product liability policy typically protects your small business in the event that an accidental death, injury, illness or accident occurs as a result of a product you manufacture or sell. Right from the start, you should notice a few things that are a little different. First, it must be accidental. Policies do not cover acts of negligence, malfeasance or deliberate avoidance. The main focus is also on the product rather than the individual.
Many small-business owners are surprised to discover the full extent of their legal obligation when it comes to product liability. Legal claims can arise at any stage of the manufacturing process, including the design, labeling, packaging, warranty, storage, handling, and distribution. In fact, even the transportation of certain products may place a small business at risk. One of the best-known examples of major litigation surrounding a product liability concern that impacted business owners across many different distribution points involves asbestos. From the original manufacturers to installers, asbestos-related lawsuits ravaged many business owners, both large and small, for years beyond the original claims.
Terms of Coverage
Product liability coverage can be complex, so it’s essential to work closely with your agent to properly identify the right policy and risk level for your business. Most product liability insurance is purchased in one-year terms then renewed annually upon expiration. Annual sales projections, distribution patterns, units sold, cost, warranty information and other records will be required in order to obtain a quote. All legal considerations for the state and international locations serviced must be taken into account, as must the risk factors for the industry at large. It’s important to represent sales information as accurately as possible in order to avoid underinsurance penalties.
Likewise, make sure each product is properly classified and categorized before submitting it for coverage, in order to obtain a reliable quote. For example, a common mistake may be to classify a step stool as a small ladder or vice versa. The actual premiums may be substantially different due to the height, weight and use requirements associated with each product.
There are several special situations where the services of a broker or agent are especially important. If the product is new or you’re a small start-up business, there may be additional requirements to obtain a policy. Brand-new inventions or materials that are not well understood may have more stringent underwriting qualifications until they have been on the market longer. Be sure to indicate special situations to your agent in order to obtain the best possible product liability policy and complete protection for your small business.