Essential Guide to Understanding Liability Insurance for Your Business

What is Product Liability Insurance?

As a business owner, you want to be protected if something goes wrong, and having product liability insurance just might be that insulation you’re looking for.

Product liability coverage is a crucial part of business liability insurance that protects your company from claims related to injuries or damages caused by the products you manufacture, distribute, or sell. This insurance helps cover medical expenses, legal fees, and damages awarded in lawsuits, providing financial protection for small business owners who face the risks associated with product defects.

No matter how established or experienced a company is, accidents can happen. Without having the proper liability insurance to insulate you from those accidents, you could risk unexpected high expenses or worse. Having the right coverage doesn’t have to be costly, but it does have to be in place. Here’s what you need to know specifically about product liability coverage for your Lake of the Ozarks business.

Clarifying Product Liability?

Before diving into product liability insurance, you must first know what the term product liability means. This term often feels like long lawyer-like talk that doesn’t make any sense. In its easiest form, product liability simply refers to a lawsuit that may be filed against an organization by a consumer due to a defect, which often leads to harm or injury.

Defects in products often stem from 3 core areas:

• A poorly designed product

• A mistake when manufacturing or constructing a product

• Missed warning labels or improper instructions

Retailers are just as likely to be held liable for product defects as manufacturers. Even if you have good intentions and believe you have practiced great care when selling the product, there’s still a chance you could be held liable. Therefore, having product liability insurance is a must for all organizations.

Understanding Product Liability Insurance

If your organization is sued due to a defective product claim, product liability insurance will step in to protect you from financial penalties. These penalties include bodily injury liability coverage, property damage liability coverage, court fees, legal defense costs, and out-of-court settlements.

Product liability insurance can be hugely beneficial, as these cases often take time and money. Even if your organization did everything by the books to protect consumers from harm, you still might be found liable to pay. The costs and expenses due to lost time and manpower could be costly, even if you are not found liable. Having product liability insurance in place can help.

What Does Product Liability Insurance Cover?

When your organization uses product liability insurance, you’re covered in case a product you manufacture or sell causes any harm. This harm or these injuries are most often caused by one of the three main product defects mentioned above — design, manufacturing, or marketing. No matter the defect in the supply chain, your business will be covered under this insurance.

Product recalls are the one exception to this rule. If there is a product recall, you’ll need to purchase a separate policy to help cover operational costs and rebuild your reputation due to the recall.

Product liability insurance is often included as part of a broader general liability insurance policy or business owner’s policy (BOP), which can bundle general liability insurance coverage with commercial property insurance for cost savings and comprehensive protection.

Does Your Business Need Product Liability Insurance?

You must carry product liability insurance if your business sells or distributes products directly to consumers. This includes Lake of the Ozarks businesses that offer the following:

• Clothing, either online or as a brick and mortar

• Bakeries, coffee shops, or restaurants

• Print shops

• Pet supply shops

• Wholesalers

• Equipment suppliers

Even if you believe your product is low risk, you must have product liability insurance. Any business can find themselves face-to-face with a product liability lawsuit.

Many clients and professional organizations require businesses to provide proof of insurance coverage before signing contracts or issuing business permits, making product liability insurance coverage essential for maintaining professional licenses and good standing.

How Much Does Product Liability Insurance Cost?

Like any business insurance, the cost of product liability insurance can vary based on several factors, including manufacturing terms and conditions, location, business operations, and coverage limits.

Additional Considerations for Product Liability Insurance

It’s important to understand that product liability insurance is just one component of your overall business general liability insurance. General liability insurance cover protects your business from claims related to bodily harm or property damage that occur during your business activities but are unrelated to your products. For example, if a customer slips on your business property and is injured, general liability coverage would help cover related medical costs and legal fees.

In some cases, businesses also need professional liability coverage (also known as errors and omissions insurance) if they provide services or advice that could result in client financial loss. This type of coverage is different from product liability but equally important depending on your business type.

When shopping for insurance, working with an experienced insurance agent can help you navigate the various types of business insurance and determine how much coverage your business needs. They can provide a general liability insurance quote tailored to your business located in the Lake of the Ozark and advise on the appropriate property damage liability limit and bodily injury liability coverage.

How to File a Product Liability Claim

If a claim arises, you will need to contact your agent. You’ll need to provide details about the incident, including photos and any relevant documentation. The claims process typically involves an investigation to determine liability and the extent of damages. Having a clear policy contract and understanding your coverage limits can make this process smoother.

Building Client Trust and Compliance

Having product liability insurance and general liability coverage not only protects your business financially but also helps build client trust. Many clients require proof of insurance before signing contracts, and having the right coverage shows your commitment to professionalism and responsibility.

Additionally, some types of insurance are legally required depending on your business location and industry. While product liability insurance is not always legally required, it is often a practical necessity to protect your business from potentially devastating lawsuits.

The Next Step in Getting Product Liability Insurance

We at McGrath Insurance can help you better understand what your business needs regarding product liability insurance.  Request a quote or set up an appointment, so we can review and discuss your business insurance needs and help you verify that you’re properly covered.

Having the right liability insurance coverage not only protects your business from costly claims but also helps build client trust by showcasing your commitment to responsibility and professionalism.

Remember, state laws don’t usually require business owners to carry general liability insurance, but having comprehensive coverage, including product liability, is a smart business decision to safeguard your company’s future. Our product is liability coverage for your Lake Ozark business.