Product liability insurance: Overview, definition, and example
What is product liability insurance?
Product liability insurance is a type of insurance coverage that protects businesses from financial loss due to claims made against them for injuries or damages caused by their products. If a product your company manufactures, sells, or distributes causes harm to someone, product liability insurance helps cover the costs of legal defense, settlements, or judgments. This insurance can cover a range of issues, from defective products to improper labeling or insufficient warnings about potential risks.
In simpler terms, product liability insurance protects your business if someone is injured or their property is damaged by one of your products.
Why is product liability insurance important?
Product liability insurance is important because it helps protect businesses from potentially costly lawsuits related to the products they sell or manufacture. Without this coverage, a business could be financially devastated by a lawsuit, especially if the damage is significant or involves multiple victims. This type of insurance gives businesses peace of mind, knowing they are covered in case their product causes harm, even if they followed all safety regulations. It’s especially crucial for businesses that produce or sell physical products, as the risks are higher in these industries.
For SMB owners, having product liability insurance is an essential safeguard against the financial risks associated with selling or distributing products.
Understanding product liability insurance through an example
Imagine your company manufactures kitchen appliances. One of your blenders malfunctions during use and causes a customer to suffer a serious injury. The customer files a lawsuit against your company for product defects. If you have product liability insurance, the insurance company will help cover the costs of legal fees, settlements, or even any judgment that may be awarded to the customer, depending on the policy terms.
In this case, product liability insurance helps protect your business from the financial burden of dealing with a lawsuit related to a product defect.
Example of product liability insurance clause
Here’s an example of what a product liability insurance clause might look like in a business contract:
“The Seller shall maintain product liability insurance throughout the term of this Agreement, with coverage adequate to cover any claims arising from defects, injuries, or damages caused by the products sold. The Seller agrees to provide proof of insurance upon request and will indemnify the Buyer against any legal costs or damages related to product liability claims.”
Conclusion
Product liability insurance is a vital form of protection for businesses that manufacture, sell, or distribute products. It helps cover the costs of legal defense, settlements, and damages resulting from claims that a product caused harm. For SMB owners, having product liability insurance is crucial for managing the risks associated with their products, ensuring that the business can continue to operate even in the event of a lawsuit. This coverage provides peace of mind, reduces financial risks, and helps businesses maintain their reputation.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.