Product liability insurance covers the legal costs associated with product-related lawsuits and claims. If a customer experiences bodily injury or property damage due to a product you manufacture, distribute, or sell, product liability coverage protects your business.
The world of insurance — particularly product-specific insurance — can get quite murky. So, we’ve compiled everything you need to know into this simple yet detailed guide. By the end, you’ll be a certified guru.
What Is Product Liability Insurance?
Product liability insurance, also known as product risk insurance, is a form of commercial insurance that covers lawsuits for any products you sell, manufacture or distribute. Legal fees and compensation for the property damage or bodily injury caused by your product can be expensive. But with product liability coverage, you can get your company back on track in no time.
What Does Product Liability Insurance Cover?
If a product you design, make, distribute, or sell causes bodily injury or property damage, product liability insurance covers any claims made against you.
The most common issues your customers may claim against include:
- Sickness caused by the consumption of your beverages or food
- Products that cause damage to their home or belongings
- Products that physically harm them
Plenty of things can cause a product problem. However, more often than not, it’s one of the following three reasons:
- A design defect — A design defect is apparent before you’ve made the item. The design could be faulty or unsafe.
- A marketing defect — This has nothing to do with the actual product. Instead, it’s an issue with how you marketed the product to your customer. It might be insufficient instructions, incorrect labelling, or lack of safety warnings.
- A manufacturing defect — With this problem, something went wrong while the manufacturer constructed the product. Usually, it’s a missing piece or an incorrect assemble.
What Doesn’t Product Liability Insurance Cover?
Product liability insurance only covers third-party bodily injuries or property damage incurred by a product you manufacture or sell. It’s very limited, which is why you’ll likely need to take out other policies to ensure complete protection.
In particular, the coverage won’t protect against:
- Injuries caused by slips or falls on your business premises
- Damages to your stock and inventory
- Damages caused by services you provide
- Injuries to you or your employees
- Damages to your company’s assets
Who Needs Product Liability Insurance?
While large corporations have a huge insurance budget, small businesses tend to fall into the trap of thinking they don’t need product liability cover. However, it doesn’t matter what product you make or how big your company is; someone can still hit you with a product liability claim.
Essentially, the minute you bring your product to market, you’re at risk for lawsuits. They can be costly, stressful, and time-consuming.
Any business that makes and sells a product should take out a product liability insurance policy, including:
- Florists
- Coffee shops and cafes
- Bakeries
- Clothing and fashion stores
- Restaurants and diners
- Wholesalers
- Print and copy shops
- Specialty food stores
Business-to-consumer operations tend to be the only corporations you think about when someone says “product liability insurance.” However, business-to-business operations are just as at-risk.
If you make a product that you sell to other companies, you also need product liability cover. Such business include:
- Equipment suppliers
- Website designers
- Suppliers of raw materials
- Software developers
How Much Does Product Liability Insurance Cost?
All insurance policies vary depending on various factors, and product liability insurance is no different. But generally speaking, you should expect to pay around $0.25 for every $100 your business makes in sales. For example, if you sell $100,000 every year, your product liability insurance will cost approximately $250 per annum.
Aside from the amount of cover you wish to purchase, insurers consider the following factors when calculating your premium costs:
Your Product Type
Different products present varying levels of risk. Even though it’s incredibly unlikely, a bookshop could be liable for a paper cut incurred by turning the pages of a novel.
Conversely, a skincare brand faces a large number of product risks like allergic reactions and chemical burns. Therefore, they’ll pay more for product liability insurance.
The Number of Products You Sell
You might sell more products than your competitors. And while it’s great for your company, it may result in larger insurance premiums because there’s more chance that a customer holds you liable for a problem.
A cafe that serves a handful of regulars every day won’t face many legal disputes if the milk is out of date and causes illness. But if that happened to a chain restaurant that serves hundreds of diners every day, someone will likely speak up and start a lawsuit.
Your Commercial Claims History
If your business has a lengthy claims history, you’ll likely pay more than similar businesses as you’re deemed riskier to insure. Thus, maintaining a clean history rewards you with cheap product liability insurance.
Your Company Revenue
If a third party makes a claim knowing your revenue is high enough to cover the payout, they’ll request more for damages. A startup, for instance, doesn’t have much at stake during a lawsuit. But a well-renowned corporation has a lot of money and assets on the line during a claim. So, if you run an ultra-profitable company, your product liability insurance premium will likely increase.
Is Product Liability Insurance On Its Own Enough for Your Business?
It’s highly unlikely that product liability insurance by itself is enough to cover your business in every eventuality. You need to take out various policies to make sure your company can hold its financial ground through all types of liability claims and lawsuits.
One of our jobs at LiabilityCover is to connect you with insurers and agents specializing in your industry and all kinds of insurance covers. But to give you a head start, you should think about acquiring the following, depending on your type of business:
Commercial General Liability Insurance
CGL provides monetary coverage for claims of third-party property damage or bodily injury caused by negligence or unforeseen accidents. Not only does it cover legal defence costs, but it typically pays compensatory damages, regardless of the claim’s outcome.
We recommend commercial general liability insurance if your business:
- Has an office space.
- Has clients that visit you on your home or work premises.
- Sends employees to clients’ offices or homes.
- Has staff who performs work duties off-site.
Professional Liability Insurance
As we mentioned earlier, product liability coverage doesn’t protect your services — you need professional liability insurance for that. Whether you design, provide or consult on any sort of service, this protection covers any mistakes you or your employees make when conducting the service.
It protects in a number of scenarios, including:
- Your client believes they suffered a loss because your service didn’t meet expectations.
- Your client suffers a loss because of errors on your company’s part.
- Your client holds you responsible for errors.
There are many types of businesses that should consider this coverage. Copywriters, IT consultants, graphic designers, and photographers are just a few examples.
Cyber Risk and Data Breach Coverage
Cyber risk insurance helps cover specific losses related to privacy breaches or cyber-attacks. Not only does it pay for legal costs, but it also provides financial aid for managing the issue (data recovery, public relations services, etc.) and rebuilding your computer network.
Small business owners tend to believe they won’t have to face such vicious attacks. But cybercriminals often target smaller companies as they believe (and rightly so, generally speaking) that there aren’t any strict security systems or insurance in place.
Equipment Breakdown Insurance
Every business uses some sort of equipment to keep things running smoothly. It can be anything from an oven to make stock for your bakery to an electric wood saw that you take from job site to job site.
Your property insurance policy may protect your equipment from damage related to fires, specific water damage, and other external forces. However, it won’t cover you if your equipment is damaged due to internal sources, such as:
- Mechanical or electrical malfunctions
- Explosion damage from piping or boilers
- Explosion damage from other pressure vessels
To remain protected during the above, you need equipment breakdown insurance.
Commercial Property Insurance
Commercial property insurance financially covers damage or physical loss of your building and its contents in the event of a fire, vandalism, theft, and other external events.
It’s important to take out commercial property insurance if:
- You use a retail space or office area.
- You lease or own a work building, inventory, or equipment.
- You use laptops, smartphones, and other portable tech items for business purposes.
- Your employees work off-site.
- You use machinery, computers, and other pieces of hardware for business.
The type of coverage you receive depends on many aspects. But you have two to choose from — all-risk insurance and named peril policies. The former covers all forms of losses unless otherwise stated. The latter protects you from the indicated list of risks.
Commercial Auto Insurance
Commercial auto insurance is sometimes referred to as business auto insurance or commercial vehicle insurance. It covers all types of trailers, cars, trucks, and vans you use for work purposes. Any automobiles that transport, goods, materials, tools, equipment, or people need protection under a commercial auto policy.
Depending on the number of vehicles and the following factors, commercial auto insurance can become fairly expensive:
- Your driving record
- Your driving experience
- The type of vehicle you’re trying to insure
- Your gender
- Your age
- The distance you travel every year
- The location you conduct business
- How you store your vehicle (i.e., in a locked garage, parking lot, on the street, etc.)
Why Choose LiabilityCover?
Our experienced team helps you acquire the insurance your company needs in no time at all. We take all the guesswork out of insurance policies with fast quotes and a dedicated customer services unit by connecting you with licensed agents and brokers.
With LiabilityCover, you get a seamless, reliable service unlike any you’ve experienced before. In a matter of moments, you can get the product liability insurance policy necessary to protect your business.
If you’re tired of trying to understand the insurance world, choose LiabilityCover today.
Frequently Asked Questions
What’s The Difference Between Product Liability Insurance and Commercial General Liability Insurance?
CGL, or commercial general liability insurance, protects against an enormous range of cases where third parties suffer property damage or injury on your business premises. It also covers you if you or an employee causes damage to a third-party venue.
On the other hand, product liability only covers damages caused by a product you sell or manufacture.
Does Product Liability Insurance in Canada Cover Your Business Internationally?
If you distribute, sell, or manufacture products around the world, you need to inform your insurer during your application. Why? Because you’ll likely need a larger coverage amount.
In addition, it’s important to ensure your products and packaging meet industry standards (safety warnings, labelling, etc.) in other countries to negate as many liability claims as possible.
How Do You Get Product Liability Insurance in Canada?
Here at LiabilityCover, we make obtaining a product liability insurance policy easy. Just follow the four steps below:
- Submit your request on our website.
- We assess your insurance requirements.
- Then, we connect you to a licensed insurance agent or broker that has extensive experience within your industry or profession.
- Finally, the broker or agent we assigned contacts you to help you get the product liability insurance and more your business needs.
Is Product Liability Insurance a Legal Requirement for eCommerce and Retail Stores in Canada?
A product liability insurance policy is not a legal requirement in Canada for businesses in any industry. With that said, it’s highly recommended, especially if you sell food or clothing.
Does Product Liability Insurance Cover Services?
Product liability insurance does not cover services. To protect yourself against claims related to failure to provide a service as promised, misconduct, or employee negligence, you should consider a professional liability insurance policy (otherwise called errors and omissions).
