Whether you are distributor, wholesaler, retailer or manufacturer, you are potentially exposed to product liability. Product liability in any sector often involves high stakes and the claim can be costly especially to small businesses. The losses are not just the cost of product recalls, but also other costs such as fines, compensation and damage to reputations.

To protect yourself against these claims, you need product liability insurance.

This insurance policy protects you against claims or suits for bodily injury or property damage suffered by third-party arising from the consumption or use of a defective or malfunction product, whether it is made, supplied or sold by your company. Covered damages also include design defects, improper instructions, manufacturing errors, and associated legal fees.

Why do businesses need product liability insurance?

If you make, supply or sell product to customers, it is important that you are insured against defective product injury. Many things can lead to a problem with your product which may cause harmful injury. Under the Consumer Protection Act, an injured party have a right to file a lawsuit and seek compensation for the injury caused.

What is a defective product?

A defective product is an item that is not suitable for its intended purpose. Such defects can be due to the absence of warning labels, instructions and inaccurate product information or ingredients. Defects render a product that is typically safe dangerous to use.

Types of Products Liability

• Design Defect
  A product can be manufactured correctly, but if there is a flaw in the way the product is designed which makes it dangerous for consumer use, it is known as design defect. A design defect generally affects the entire product line, rather just one particular item. 
• Manufacturing Defect
  A manufacturing defect is caused by manufacturing or production flaws when manufacturers fail to follow a product’s intended design. This can cause unsafe defects in the product. A manufacturing defect can affect one item or an entire batch in the product line.
• Marketing Defect
  In the event that you fail to provide adequate instructions and warnings or improper labels on proper use of your product, your company can be sued. For e.g. products that are not properly labelled with directions of use, or have insufficient explanatory warnings to reduce consumer risks such as possible side effects while using them.

Tips for reducing product liability risks

Firstly, having the right insurance to mitigate your business from costly losses is a good start. Ensuring your product is safe from risks is no easy feat and definitely a daunting task. Here are some guidelines you might want to consider incorporating into your product’s life cycle.

1. Perform an honest risk assessment of your products
   Verify your testing methods are sound before releasing your products to the public. Take pro-active steps to reduce risks or eliminate them completely. Products should also comply with industry and government safety standards.
2. Build Safety into Design
   A safety review should be taken into account when designing products such as:-
   a. Prominent warning and instruction labels on how the product should be used and the kind of hazards that may result.

   b. Be detailed and accurate with the information. For e.g. failure to disclose nuts in a food product could be slapped with a lawsuit if a consumer has an allergic reaction.

3. Use materials from good and reliable sources with credible reputations
   It is possible that some damages occur not at the manufacturing process but as a result of using faulty and unreliable materials in the products. Always opt for materials with the best quality, not just because they are the cheapest.
4. Enable Customer feedback
   The voice of the Customer plays a relevant role in today’s competitive markets. Manufacturer and distributor should take into account feedbacks from Customers as it can help in both product improvement and measuring customer satisfaction.

Tips to reduce premium costs

1. Review your safety compliance measures
   Product design, manufacturing processes, usage instructions and warning labels should be reviewed on a regular basis. This can lower the number of safety-related claims. Less claims equal to less premium.
2. Compare quotes
   Since the product liability insurance pricing varied, small business owners should work with a broker to have prices from multiple insurance companies.

When buying product liability insurance, consider how much is needed; what markets are covered; the strength and reputation of provider; and what coverage is included.

For more information on business insurance and the options for your business, go to our products pages at www.ibizcover.com.