What is product liability?
Product liability is the idea that a manufacturer and possibly a distributor or retailer is responsible for injuries caused by product defects. Though this is a broad concept, it primarily relates to physical products – not services or advice. Products can cause fires, discoloration, sickness and even death. And not every bad product is made by a malevolent company that tries to cut costs at the risk of lowering quality, or ignore the problems when first reported: most flaws are just accidents, mistakes made by well-intentioned people somewhere along the production cycle.
How does product liability insurance protect manufacturers and suppliers?
When you make, sell, supply or distribute a product you become responsible for that product. If someone is injured or becomes ill because of the product, or the product causes property damage, you may be held responsible and sued for damages. If you do not carry product liability insurance, a lawsuit could bankrupt your company. Product liability insurance will cover your legal defense expenses and any judgment, up to policy limits. A frivolous lawsuit may be dropped when your insurance company provides a vigorous defense.
At what points in the manufacturing cycle does product liability apply?
The manufacturing cycle starts with identifying a need (or receiving an order). The company’s creatives then come up with ideas of how to make this dream a reality in the development state. They consider who the product is for, what it has to do, and factors in its production that might need to be addressed when coming up with the design – then they send the plans off to be prototyped. After the prototype is tested, the company plans out the production and delivery details and begins making product.
The manufacturing cycle is a long process, and things can go wrong every step of the way. Your company may not know about a problem until the product has already been distributed, but still be held responsible. A conscientious business that strives to deliver quality, safe products to the public is at risk every time it unveils a new product – even after a careful design, testing and review cycle.
If a consumer product is faulty and does not work, the manufacturer can be held responsible for more than injury, death and property damage. For example, if you are making equipment that is used in construction and your tools interrupt production, your company is liable for the loss of business income for those needing to use your machines.
If a product is faulty and causes injury, you will be held responsible for any medical expenses (and the slew of pain and suffering lawsuits) and damages caused. If a product is recalled, retailers, consumers and distributors may all have claims against the manufacturer. Toys and baby care products are frequently recalled for design defects. An example of a faulty product that caused injury would be a design flaw in Firestone tires that caused many accidents around the turn of the century. In that case, subsequent investigation also uncovered a plot to ignore and cover up the defect, a criminal action.
Do you have any suggestions for small manufacturers, retailers or distributors regarding product defects?