Products liability cases typically make the headlines when a manufacturer is hit with a massive jury award for injuries caused by its defective product. As a result, many believe only large manufacturers need to worry about products liability. However, products liability extends well beyond manufacturers.
If someone is injured by a defective product, everyone involved with that product may have a liability exposure. Products liability generally applies to those engaged in the business of selling or otherwise distributing a product, so those in the distribution chain who sell or distribute a defective product may be held liable. Links in this chain may include a product’s designer, manufacturer, distributor, wholesaler or retailer.
A product is generally considered defective when, at the time of sale or distribution, it contains a manufacturing defect, a design defective, or because of inadequate instructions or warnings.
Manufacturing Defect. The product contains a manufacturing defect that departs from its intended design, despite exercising all possible care when preparing and marketing the product.
Design Defect. A product is defective in design when foreseeable risks of harm could have been reduced or avoided by the adoption of a reasonable alternative design and the omission of the alternative design renders the product not reasonably safe.
Inadequate Instructions or Warnings. A product is defective because of inadequate instructions or warnings when foreseeable risks of harm posed by the product could have been reduced or avoided with reasonable instructions or warnings and the lack of instructions or warnings renders the product not reasonably safe.
One justification for the broad scope of potential liability is the belief that those who profit from the sale or distribution of a product should bear the financial burden of damage caused by a defective product. Needless to say, this financial burden can be immense.
According to the Insurance Information Institute, the average products liability jury award in 2013 was nearly $6.4 million. Moreover, the costs of defending products liability cases are often higher than other types of litigation. For example, in addition to $1.6 billion in products liability losses, insurers spent another $1.2 billion in settlement expenses in 2013, or 75 percent of the losses.
Most businesses would not survive the financial burden created by a defective product without insurance. Products liability insurance protects against financial loss arising out of liability that is incurred when a defective product causes injury or damage. This coverage may be available under a standard commercial general liability insurance policy (often referred to as products-completed operations coverage) or a under a separate policy.
Though sufficient coverage can often be obtained under a standard general liability policy, the amount and availability of products liability coverage depends on various factors, such as the nature of the product. An experienced insurance agent can help you find coverage that best suits your needs.
If you would like more information about obtaining products liability insurance coverage, please contact us.