In 1944, Gladys Escola, a server at a restaurant in Fresno, California, was stocking glass bottles of Coca-Cola. As she filled the shelves, a defective bottle exploded in her hand, creating a five-inch cut that severed her nerves, blood vessels, and muscles. She sued the Coca-Cola Bottling Co., and the court ruled in her favor, meaning Coca-Cola was liable for the damages.
While this California court case from nearly a century ago might not seem immediately relevant to a small business today, Escola v. Coca-Cola Bottling Co. became crucial in developing US product liability law. One could argue it’s the reason many companies need product liability insurance today. Let’s look at what it is and why your business might need it.
What is product liability insurance?
Product liability insurance is insurance that protects your business against legal claims of bodily injury or property damage related to the product you make, distribute, or repair. In other words, product liability insurance ensures you’re not on the hook for costly lawsuits if your product happens to hurt someone. Some cases of injury or damage are covered under your general liability insurance policy, but not all.
How much does product liability insurance cost?
AdvisorSmith says product liability insurance is usually about $99 per month, or $1,192 per year. And according to estimates from Insureon, product liability insurance costs a bit less, typically around $42 per month, or $504 per year.
Rates could be higher for products that are considered “riskier” or lower for products that are considered to be less of a risk. Just under a third of Insureon customers pay less than $30 monthly and 41% pay $30 to $60 per month. Food products, construction, and skin care might be considered riskier, for example, while photo, video, and professional services tend to be on the lower end.
Your coverage plan and limit also factor into the cost. Most Insureon customers, for example, opt for a $1 million per-occurrence limit and a $2 million aggregate limit. This means the insurance will cover up to $1 million for any single claim and up to $2 million for all claims during the policy period.
How does product liability insurance work?
If you make or sell products, your business can be held liable for the cost of product liability claims if your product ends up harming a customer—even if the customer uses the product incorrectly. Product liability insurance shields you from legal and financial fallout. It provides third-party coverage, meaning the payment for damages goes to those affected or injured, not your business. (In this case, the person who suffered the harm is the third party, and your business is the first party.)
What product liability insurance covers
Only damages caused by specific factors are covered. These include:
- Design defects. There’s something wrong with the product’s design.
- Manufacturing defects. Something went wrong during manufacturing.
- Marketing. A mistake in marketing materials, like improper labels.
- Improper warning. The product doesn’t include sufficient warnings about potential harm.
- Strict liability. The product harms the customer, even if you’re not at fault or it wasn’t your intention.
What product liability insurance does not cover
Product liability coverage does not include:
- Tech products. Product liability is for physical harm, not digital harm. Any damage done by tech products requires errors and omissions insurance (which covers losses your client suffers because of your mistakes) or a professional liability insurance policy.
- Employee injuries. Workers’ compensation insurance covers employee injuries and lost wages.
- Customer injuries. Customer injuries at your place of business, like slip and fall injuries, are covered by general liability insurance.
- Product recalls. You’ll need specific product recall insurance if a customer injury leads to a product recall.
- Commercial auto accidents. Commercial auto insurance covers commercial vehicle accidents.
- Damage to your property. While professional liability coverage includes damage to other people’s property caused by your product, commercial property insurance covers damages to your property.
What product liability coverage protects your business from
Product liability coverage includes financial protection from:
- Legal fees. A customer sues your company after your product injures them.
- Property damage. Your product damages a customer’s property.
- Medical costs. Your product makes someone sick or hurts them.
- Wrongful death. Your product kills someone or leads to their death.
Who needs product liability insurance?
Not every business needs product liability insurance—it’s only necessary for companies that produce, distribute, or repair physical products. However, it’s important to remember that “product” can be widely interpreted. If your company sells food products and someone gets sick from eating your food, you’ll want product liability insurance.
Consider looking into product liability insurance if your company is in the following industries:
- Manufacturing. You’ll be held liable if your company makes something that causes bodily injury.
- Distribution. A distributor can be held liable for damages caused by defective products they distribute.
- Retail. A retail shop is liable for the products it sells, even if it doesn’t make them.
- Food. Food poisoning can lead to severe illness or even death.
- Construction. Electricians, general contractors, plumbers, and others who build physical structures can be liable for job site damage and injury.
- Beauty and cosmetology. Beauty products can cause allergic reactions and physical harm.
- Repairs. If you’re in the business of repairing products, whether it’s washing machines or cars, and someone is hurt as a result of your work, you can be held liable.
How to get product liability insurance
As with other types of insurance, the best way to get product liability insurance for your business is by requesting quotes from a few different insurance providers for comparison. You can ask your business contacts for referrals or start with a Google search, and then narrow down your needs from there.
Tips for getting product liability insurance
- Check if you already have it. Depending on your business, your general liability insurance—which provides broad coverage against injury and property claims—might already give you sufficient product liability insurance. Many of these policies do. If you have general liability insurance, find out what’s covered and whether you need to purchase additional policies.
- Choose the right coverage limit. This includes the amount of coverage you’ll receive, as well as where you’re covered.
- Bundle product liability with your business owner’s policy. Product liability insurance may be included in a business owner’s policy (BOP)—a bundled insurance package that provides different types of business insurance, including general liability insurance, commercial property insurance, and workers’ compensation. A BOP’s exact coverage varies depending on your insurance company and industry. If your company falls under manufacturing, distribution, retail, food, construction, beauty, or repairs, your BOP likely includes product liability insurance (though it’s worth double checking).
- Negotiate. You don’t have to agree to the quotes you’ve been given. You can negotiate better rates or coverage policies. Remember, everything is negotiable before you sign the contract.
Protect your business
Product liability insurance is critical to protecting your business. While not frequent, accidents do happen. Having product liability insurance is a great way to ease stress and have peace of mind so you can focus on the things that matter.
Product liability insurance FAQ
What insurance do I need for selling products?
You need product liability insurance for selling products. You might also want to consider general liability insurance.
Do I need business insurance if I sell online?
If you sell physical products, you need product liability insurance, even if your business is online. However, if you sell digital products like software or web design, you need errors and omissions or professional liability insurance instead.
Do wholesalers need product liability insurance?
Yes, wholesalers need product liability insurance.
Is product liability included in general liability insurance?
Some general liability insurance policies include a degree of product liability insurance, but it’s not guaranteed and might not provide enough coverage for your needs.