When one of the products that you sell, manufacture or renovate with your brand name on it unexpectedly causes harm to a customer, then you’ll be glad that you have a product liability insurance. Aside from paying a massive amount for the claims and compensation costs caused by safety failures, it can also damage the reputation of your company. That is why it is significant that you should get some help from your insurance coverage. But before you start looking for a product liability insurance policy, you must learn how this type of insurance works and what can be covered by this policy.
What is product liability insurance?
Product liability insurance is a type of commercial insurance that can protect your company in case there are claims of injury or damage caused by your product. Product liability insurance can pay for the legal fees and compensation costs if someone sues you for injury or damage caused by the product that you make or sell. In some cases, you can still be held liable even if you are not the manufacturer of the product. You can still be blamed if you are involved in the product’s design, repair, or supply.
Most likely you will be responsible for paying the compensation costs if you are the one who produced the product that you sell, if the item bears your business name, or if you are the one who repaired or refurbished the product. You could also be liable if the manufacturer has gone out of business, or could not be traced anymore.
In case there are serious defects on the product, then you’ll be grateful that you have product liability insurance. This can cover the costs of legal fees and compensation costs in the event that the injured member of the public will sue you. For instance, if the kitchen appliance that you manufacture malfunctioned and caused a fire. Another example would be if you have a toy shop and a child was injured by your faulty toy. In these cases, you will be asked to pay for the compensation. However, regardless of what type of policy you have chosen, you should be aware of what exactly is covered, and what isn’t.
Who can be held liable for the damages?
Product liability insurance can pay for the compensation cost caused by the malfunction of the item. This amount will be directly given to the client who was hurt due to the incident. The company which designed, manufactured or supplied the product will be held liable for the damage. However, companies who intervened in the design, production, or distribution of the product can still be held liable if it is proven that the product is indeed faulty. In the case of production failures, then it can affect the entire batch of products which can result in class-action lawsuits that could cost a lot of money.
Companies who repaired, refurbished, or modified the product are still required to pay for the compensation of a faulty product. Other companies who are liable are those whose brand name is found on the product and the manufacturer of the product has stopped his business or could not be identified anymore. Hence, based on these scenarios, there are actually many businesses who require this type of insurance.
What is covered and what is not covered by a product liability insurance?
The level of coverage for your product liability insurance will likely depend on the company’s involvement in the processing of the product. If your company is the one who manufactures the product, then your policy can cover for the injuries, damage, loss, or any unexpected incidents caused by the product.
If your company is responsible for the distribution of the product, then the policy can cover for the damage, loss, injuries, or any unforeseen circumstances provided that the goods were already defective when they were received by the customer. It can also be covered if detailed safety guidelines were provided and return terms for damaged products were clearly explained. Also, if the company has effective documentation and quality control schemes.
Unfortunately, this type of insurance cannot cover for the damages, loss, or injuries, if the product malfunction is caused by poor craftsmanship.
How much does a product liability policy cost?
The cost of product liability insurance usually varies. Most likely it will depend on several aspects such as the kind of your business, the number of your employees, as well as the quality control and safety measures that you use in the production and distribution area.
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