Rigorous manufacturing standards and enhanced quality control are perhaps the best ways to prevent a product liability lawsuit. However, as the link between companies and consumers weakens, manufacturers, distributors, wholesalers, and retailers are increasingly at risk when customers incorrectly use their products and become injured. While a company may feel it acted responsibly to prevent any potential liability, it may still be vulnerable to lawsuits.
According to the legal doctrine of “strict liability,” a company may be held liable for any damages resulting from the use of its products, even when there is no proof of corporate negligence. Any company that sells, distributes, or manufactures a product may risk losing a significant amount of money in direct compensatory and costly punitive damages. Fortunately, companies may be able to protect themselves with the proper insurance coverage. Product liability insurance, combined with procedures to create a safe product, may help secure a business against liability from real or alleged product defects.
Generally, a product liability policy covers property damage or bodily injury caused by the product, as well as payment for legal defense costs. There are two basic types of insurance: Claims-made policies apply to claims made at any time the policy is in effect, regardless of when the alleged defective product was manufactured, and occurrence policies cover losses from use of the product during its entire useful life.
Premiums for coverage under an occurrence policy may be higher because claims can be filed when the policy is no longer in effect. Coverage for recalling and replacing defective products, including the cost of the damaged product itself and any potential losses resulting from nonperformance of the product’s intended function, generally is not included in standard policies but may be purchased separately in many cases.
Although product liability insurance provides protection from claims arising from the use of faulty products, this coverage should be used in conjunction with quality control and other precautionary and safety measures. Business owners may want to consult with an attorney who can review all labeling and advertising, and also thoroughly investigate any product claims. A qualified insurance professional can help assess the potential risks of your business to determine the appropriate coverage. Give them a call for more information.