What Is Product Liability Insurance?

September 12, 2023
A burnt plug requiring a claim to product liability insurance.

Companies that distribute or sell products may encounter complaints or even legal claims that the products were defective. Product liability insurance can be an important risk management tool that can help these companies protect against losses arising from product liability claims.

What Is Product Liability Insurance?

Product liability insurance is a type of business insurance that can help businesses protect against losses from claims alleging that a product they manufactured or sold caused bodily injury, property damage, financial loss, death, or other damages. While the terms and conditions of each policy will vary, product liability insurance policies typically cover legal expenses and damages resulting from such claims.

How Does Product Liability Insurance Typically Work?

Product liability insurance is designed to cover losses arising from claims that a product made or sold caused harm to another. These claims may be asserted in the form of a lawsuit and products liability insurance policies can provide coverage to help pay for the costs associated with legal fees, medical costs to claimants, as well as settlements and judgments to the extent liability is found.

Product liability claims generally falls into one or more of the four following categories:

  • Strict liability, which means a finding of automatic liability even if the business is not held to be negligent or at fault.
  • Warning defects where the product does not provide sufficient precautions or notice on labels, marketing, packaging, or instructions.
  • Manufacturing defects that may occur from an assembly or production error.
  • Design defects that occur as a result of a mistake or error in the product design before the actual product is manufactured.

Product liability insurance policies typically only cover certain liability losses and commonly exclude operational interruptions, employee injuries, product recalls, inventory loss, theft, or damage from natural events (other types of insurance policies may offer coverage for these claims).

Who Should Consider Buying Product Liability Insurance?

A business of any size should consider obtaining a product liability insurance policy, especially if the business is in, for example, the manufacturing, distributing, importing, retailing, repairing or wholesaling industry.

Is Product Liability Insurance Required?

While product liability insurance is not a legal requirement, many suppliers and retailers may mandate that such insurance is secured as a prerequisite to doing business.

A product liability claim can be unexpected. It could happen in virtually any type of industry including, for example:

  • Foodservice
  • Beauty and cosmetology
  • Trades professions
  • Importers
  • Wholesalers, distributors, and retailers 

Product liability insurance can be an important risk management tool to help businesses protect against losses arising from product liability claims.

What Factors Determine the Cost of a Product Liability Insurance Policy?

Product liability insurance premiums depend on many different factors, including, but not limited to:

  • Company risk
  • Industry
  • Size of business
  • Company location and coverage territory
  • Claims history
  • Desired policy limits and deductibles

Why Is Product Liability Insurance Important?

A product liability claim can be very costly and, without adequate insurance coverage, the out of pocket costs could be financially devastating to a business. While a standard commercial general liability insurance policy may offer some level of products liability coverage, such coverage can be limited in scope. Product liability insurance designed specifically for business owners may offer broader, more specialized coverage. Not only is it a valuable risk management tool that can help protect a business owner against covered losses suffered in the event of product liability claim, it can also be contractually required in the course of doing business.

Acrisure and our Partners specializing in products liability insurance coverage can help businesses find the appropriate coverage for their specific needs. We can help find a meaningful solution by matching businesses to the right insurer to help create a personalized insurance solution.

Contact us today to learn more.

Share a Story

Have you noticed a trend in financial services? Curious how
we craft our content? Looking for Acrisure to comment in
the media?