Product liability insurance is insurance that provides coverage for businesses that manufacture or sell physical products in the event a product causes harm (like injuries or property damage) to an individual or another business. This guide will cover all of the information business owners need to know when buying product liability insurance. This guide will first explain how product liability law works and then describe what product liability insurance is, what it does and doesn’t cover, factors to consider when buying a policy, and the top product liability insurance providers.
Before diving into the details, here is a preview of some of our top picks.
- The Hartford offers the best product liability insurance for small business customers
- The company’s policies are affordable and fit the needs of most small businesses
- Its online quote tool makes it easy to see the price of different policy options quickly
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- Embroker’s product liability policies are among the most affordable in the industry
- Its online tools make it easy for customers to customize their policies
- Provides excellent customer support and is backed by some of the nation’s leading insurers
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What Is Product Liability?
Products are not always perfect, and occasionally, a defect that occurs in the design, manufacture, or sale of the product may have adverse consequences for those who buy it. As such, manufacturers, distributors, retailers, and others in a product’s supply chain can be held legally responsible when a defective product causes injury or property damage to another business or individual. The legal doctrine of product liability serves to hold businesses accountable, compensate those who experience harm, and ensure that products are safe and work as intended.
Legal Basis for Product Liability Claims
In a court of law, product liability claims are usually based on one of three legal rationales:
- Negligence – The basis of a negligence claim is the idea that one party has a duty of reasonable care to another. In the case of product liability, this means that one who sells the product has a duty to provide a safe, non-defective product.
- Strict liability – For strict liability claims, the party bringing the claim must establish that the product was defective and that the particular defect caused whatever harm was suffered.
- Breach of warranty – A warranty is when a business claims that a product will meet certain standards for safety or quality. If a product fails to meet those standards and causes harm to a buyer, that individual or company may be able to lodge a claim.
To establish a successful claim, a plaintiff business or individual must establish several facts. First, plaintiffs must show that they suffered some sort of injury or damage as a result of using a product. Second, they must establish that the product had some sort of defect in its design, manufacture, or marketing. Third, there must be a link between the injury suffered and the product defect. Finally, the plaintiff must have used the product in the manner intended. These factors collectively prove that a manufacturer or other product seller holds responsibility for the harm caused, rather than some other factor or circumstance.
Remedies for Product Liability Claims
When a product liability claim has been proven, the individual or business making the claim can be compensated to make up for the harm experienced. This compensation may take the form of medical expenses for physical injury, the cost of repairs for property damage, lost wages or revenues stemming from the harm caused by the product, or other damages deemed fair by a court. In some cases, the individual or business who manufactured or sold the product may also be subject to punitive damages to discourage similar problems in the future.
Often, a product defect is not limited to a single instance. When this happens, claims can be brought by each individual who experiences harm related to the product defect or as part of a class action, which groups together related claims against the manufacturer or seller. Naturally, this multiplies the damages that a company may be forced to pay out.
Even in individual claims, the damages that a business pays can reach into the millions of dollars, and product liability litigation is becoming increasingly common. To protect companies from bearing the full cost of product liability claims-which are often enough to put them out of business-many businesses obtain product liability insurance coverage.
Understanding Product Liability Insurance
Product liability insurance is one form of business insurance that protects businesses from bearing the full cost of unexpected losses and financial obligations related to a product defect. Businesses across the supply chain that design, manufacture, or sell products should consider purchasing this form of coverage to lower the risk of having to pay damages for an expensive product liability claim.
What Is Product Liability Insurance?
Product liability insurance policies cover claims related to product defects that cause injury or property damage. By paying for this type of policy, a business can have select costs, like legal expenses or compensatory damages, covered by an insurer in the event that someone pursues a lawsuit or other claim against the business relating to a defective product.
For product liability coverage, “product” is usually limited to tangible property, and the insurance policy may only cover some costs associated with a claim against the business. Because of this, product liability coverage is distinct from other liability policies that a business may secure.
Product Liability vs. General Liability Insurance
Most small businesses hold a general liability insurance policy, which protects businesses against claims that happen as a result of normal operations. For instance, a general liability policy commonly covers costs if a business damages someone else’s property or if someone suffers a bodily injury on the business’s premises.
The term “general” liability coverage makes these policies sound more expansive than they usually are. For businesses that buy and sell goods, product liability coverage is usually wise to include in a general policy or to purchase separately. Product liability insurance provides coverage for injuries that specifically stem from the use of a product that the business manufactures or sells. Some insurers may offer product liability as a component of a general liability policy, but if the business manufactures or sells products that have a higher potential of causing injury or damage, the business should consider additional coverage.
Product Liability vs. Professional Indemnity Insurance
Professional indemnity insurance is a form of liability insurance that provides coverage for individuals or companies whose businesses provide services or advice. Sometimes called “errors and omissions insurance,” professional indemnity insurance covers just that: claims against a business that allege errors, omissions, misrepresentations, or other failures that cause harm to a client.
Businesses that provide professional services-like consultants, accountants, lawyers, doctors, designers, or architects-are most likely to hold a professional indemnity insurance policy. In contrast, product liability claims typically deal with damages caused by a physical product. For example, if a manufacturer made a product that was defective because of a bad design, the manufacturer’s product liability coverage would cover claims made due to injuries or damages from the product. If the manufacturer made a claim against the product designer they had contracted with, the designer’s professional indemnity policy would cover costs associated with that claim.
Product Liability vs. Product Recall Insurance
Products with known defects are sometimes subject to recall, whether as a voluntary measure from the manufacturer or a mandatory one from a regulator who has determined the product is unsafe. The costs associated with a mass recall can be steep: the business recalling the product may need to pay the cost of notifying consumers, shipping or transporting products, storing recalled inventory, and paying increased personnel costs to process the recalls. Some policies may also cover interruptions to the business or reputational damage that occur as a result of the recall.
Product liability insurance policies do not typically include coverage for these potential expenses. For businesses that wish to minimize the risk of an expensive recall, they can purchase an additional product recall insurance policy that will cover the costs of the recall.
How Does Product Liability Insurance Work?
Despite manufacturers’ and retailers’ best efforts, products may have defects that bring harm to consumers. If something goes wrong, the individuals or companies who experience injury or other harm due to the defective product may be able to file a claim and take the businesses who made the product available to court. The costs associated with these claims are enough to cripple many small businesses. According to data from the Insurance Information Institute, jury awards for personal injury claims in product liability suits averaged more than $7.5 million in 2018.
Fortunately for business owners, product liability insurance policies transfer risk to an insurer to cover costs associated with the claims. As with other forms of insurance, businesses should work with insurance providers to define the following elements of their policies to fit the needs of their business:
- Coverage – The types of damage, incidents, and expenses that will be covered under the policy.
- Monthly premium – The amount of money that the policyholder must pay to retain the policy on a monthly basis. Higher premiums are typically required for companies that have a higher risk of being subject to a product liability claim.
- Deductible – The amount of money a covered company must pay toward a claim before coverage kicks in. Depending on the policy, the company may pay a deductible for each individual claim, for a set of claims related to the same product and defect, or for a regular period of coverage (usually annual).
- Policy limit – The defined maximum that the insurer is required to pay toward claims filed on the policy. Businesses with higher risk may want to seek a higher limit, but will usually have to pay higher premiums to obtain greater coverage.
One other detail to consider is whether the policy is designed on a per claim, per occurrence, or aggregate basis. “Per claim” coverage means that each individual claim filed against a business may have a separate deductible and payment limit, which can be costly for the covered business if many claims are filed against it. Alternatively, “per occurrence” coverage essentially considers all similar claims stemming from the same product and defect as one occurrence. This scenario would likely involve a higher deductible to account for a greater number of claims. In addition, a policy may have an aggregate deductible or policy limit for all claims within a certain time frame.
The best policy for you will depend on the level of risk of an incident, the type of policy limit you will need, and your business’s cash flow.
What Does Product Liability Insurance Cover?
When evaluating a product liability policy, businesses should be careful to understand exactly what coverage entails. Some businesses may mistakenly assume that they will not be subject to liability claims depending on the business’s place in the supply chain or the nature of the incident that led to the claim. Thus, it is important for businesses to be familiar with the usual scope of product liability coverage so that they can best identify policies that meet their needs.
Who Is Covered Under a Policy
Any person or business in a product’s supply chain can and should consider getting coverage from a product liability insurance policy. While the individuals or businesses who are closest to a product defect (especially manufacturers) are typically those held responsible for any damage the defect causes, product liability law in many states allows for others in the supply chain to be found liable as well. This includes those who are less likely to have been responsible for a defect, like retailers. The good news for those businesses and individuals is that the cost of insurance coverage may be lower compared to manufacturers. Nonetheless, any business in the categories below who help bring products to market should seek coverage:
- Manufacturers – Businesses that manufacture products are the most frequent target of product liability claims because they are responsible for creating the products. Any defect that results from a design or manufacturing error will usually be traced back to the manufacturer, which is why almost all manufacturers have product liability coverage.
- Distributors – While distributors do not manufacture the products, anyone who obtains products from a distributor may identify them as the liable party in the event something goes wrong. Distributors are especially at risk if a product was designed to their specifications or if they import goods from abroad.
- Suppliers – Businesses that supply to other businesses can also be held liable if the goods they supply are found to be related to a product defect.
- Retailers – Those who sell products can be held liable for product defects because some states hold that retailers are responsible for inspecting the products they sell and/or providing warnings about potential harms.
A policy may cover a business’s legal fees, damages due from a judgment or settlement, and select other related expenses due to the person or business bringing the claim. The nature of the damages or harm caused by a product defect will differ based on the situation, but product liability insurance typically covers incidents within a few broad categories of harm:
- Injury caused by a product – If the product defect causes physical injury to a customer or other party, a product liability policy can cover legal expenses and compensatory damages. For instance, if a bolt was missing on a ladder and the individual who purchased it fell and broke an arm as a result, they could sue the ladder manufacturer, and the manufacturer’s policy could pay for the cost of hiring a defense attorney and paying the individual’s medical bills.
- Illness caused by a product – Similarly, if a product leads a consumer to contract some sort of illness, the liability policy might pay for medical expenses and lost wages or revenues. This is common with food and pharmaceutical products.
- Property damage caused by a product – When a product defect causes damage to another’s property, a product liability policy will cover the expenses associated with repairing or replacing the property. For instance, if defective construction materials led to damage to a building’s foundation, the policy might cover the cost of making repairs.
- Wrongful death caused by a product – In cases where a product defect leads to someone’s death, product liability policies could cover funeral expenses or damages from lost wages and emotional trauma for the deceased’s family or dependents.
Types of Liability Claims
Products pass through many steps on the way to buyers, and each step of that process inevitably adds potential risk of creating the basis for a product liability claim. This could be a faulty design, some sort of error in the manufacturing process, problems with the way the product is packaged and handled, or erroneous information that consumers receive in the retailing and marketing of the product.
Individuals or businesses who make a claim must prove that they experienced harm and that the harm is attributable to a defect in the product. Product liability claims can take a variety of forms that reflect how defects can occur at various stages, which is one of the main reasons why businesses throughout the supply chain should obtain product liability coverage. Common types of product liability claims include:
- Design defects – Liability claims related to design defects suggest that the design of the product was faulty in a way that led to harm. An example would be a phone battery that is manufactured to specification but due to a faulty design overheats and causes fires.
- Manufacturing defects – Manufacturing defects are those that occur in the actual manufacture of the product. If a factory produced a piece of machinery that had a broken or missing part that eventually led the machine to fail, the factory could be subject to a claim based on that defect.
- Failure-to-warn defects – A failure to warn defect occurs if a manufacturer, supplier, or retailer does not warn consumers about the potential dangers associated with using a product. For instance, if a piece of exercise equipment had a user weight limit of 250 pounds but has no warning to that effect, a 275 pound user could sue for failure to warn if the product failed and the user experienced an injury as a result. Another common example is a failure to include allergy warnings on food product labels.
Regardless of the basis, most lawsuits take the form of a strict liability claim. This in essence means that a plaintiff only has to prove that the product had a defect and that the defect in question caused the plaintiff some form of harm. In strict liability cases, it does not matter if a business made attempts to avoid a mistake, just that the defect occurred.
What Doesn’t Product Liability Insurance Cover?
Product liability insurance is narrowly focused on covering claims that arise under the basic principle of product liability: a consumer or consumers who experience harm as a result of a defect in a physical product. Product liability claims may be the effect or cause of other issues for a business, but costs associated with those issues will likely require a different form of insurance or else out-of-pocket payments.
Issues that may be related to a product liability claim but that would not be covered under a product liability insurance policy include:
- Product recalls – Products with a known defect are often recalled off the market to prevent further harm to consumers. However, product liability insurance policies do not usually cover costs associated with a recall, like notifying consumers or transporting and storing recalled products.
- Lost inventory – Similarly, if a manufacturer or retailer discovers a product defect and disposes of the defective inventory before it reaches a buyer, a product liability policy would not cover the cost of the lost inventory.
- Employee injuries – If harm comes to a business’s employees while manufacturing or processing a defective product, product liability insurance would not cover associated costs. Other common forms of coverage like general liability or workers’ compensation insurance would be more likely to cover such incidents.
- Professional negligence – If a defect can be attributed to an individual or business’s failure to perform professional services competently, the individual or business could be found professionally negligent. A product liability insurance policy would not cover costs associated with such a claim. Instead, the individual or business would likely hold a professional indemnity insurance policy.
Product Liability Insurance Requirements
Product liability is not a legal requirement for a business to operate, but any company that manufactures, distributes, or sells products would be wise to get coverage. Product liability lawsuits are one of the most common forms of litigation, with tens of thousands of cases filed in the U.S. each year. They are also one of the most expensive to resolve, with settlements and jury awards frequently reaching into the millions of dollars. A company’s risk can vary based on its industry, location, and place in the supply chain, which means that every business should closely examine their context to determine the extent of product liability insurance coverage needed.
Product Liability Laws by State
There is no federal law that governs product liability nationwide in the U.S., and state laws on product liability can vary substantially. Because of this, it is important for businesses to understand the differences in product liability laws to ensure that they are choosing the appropriate coverage for states in which they operate.
One of the most significant areas where product liability laws may differ is in who in the supply chain can be held liable. Businesses that manufacture products with a defect can always be held liable, but the question of whether businesses that sell defective products after manufacture can be held liable is more complex. States including California, New York, Texas, and Florida establish that sellers can be held liable to an equal extent as manufacturers, while others like Georgia, Colorado, and North Carolina only hold sellers responsible for their own negligence or breach of warranty. Sellers can usually sue to recover damages from others in the supply chain going back to the manufacturer, and a few states, including New Jersey and Minnesota, also allow sellers who are the target of a lawsuit to have the suit dismissed if they identify the original manufacturer.
Other areas where product liability laws differ include:
- Damages – In addition to paying compensation to the claimant, some states allow businesses to be subjected to punitive damages meant to punish and deter the failures that led to the claim from happening again.
- Statute of limitations – This is the number of years after an injury or harm in which a suit can be filed. Most states set this at two or three years from the date of the injury, but other states go as high as six years. Alternatively (or additionally), some states require that a suit be brought within a certain period after the initial purchase of the product, typically ten to twelve years.
- Joint and several liability – If a suit has multiple defendants, some states allow any single defendant to be held responsible for paying damages (joint and several liability), while others only require the defendant to pay a proportionate amount (several liability).
Product Liability Risk by Industry
Some industries are by nature more likely to face product liability claims, which raises the importance of having proper insurance coverage for businesses in those markets. These industries may have products where the potential damage associated with a product failure would be higher (e.g. industrial equipment and heavy machinery) or harm would be widespread (e.g. pharmaceuticals and consumer goods). Accordingly, the industry in which a business operates will be one of the most significant factors that insurers will evaluate in determining the terms of coverage on a policy-and likewise, it should be one of the business owner’s key considerations when deciding how much coverage to obtain.
A business’s position in the supply chain is also a consideration because manufacturers are not the only parties who could be held liable for damages caused by product defects. While the exact liability risks may vary depending on state laws, any person or business involved in the design, manufacture, sale, or distribution of a product could be held liable for a claim. Some retailers or distributors may not realize the extent of their risk exposure for product liability claims, but they would be wise to obtain their own coverage and require manufacturers to hold product liability coverage before agreeing to sell their products. Doing so can help ensure that those businesses are not left on the hook in the event of a claim or lawsuit.
Product Liability Costs & Premiums
When an insurer offers liability coverage, they are estimating that they will collect more in premiums than they will ultimately have to pay out in the event of a claim against the insured. To end up on the right side of this bet, insurers will look at a business and their products, evaluate the risks and potential damages from liability claims, and set premiums and coverage levels accordingly. This means that each business will have unique costs associated with their product liability policies, but this guide will give you a sense of what to expect in terms of cost, the factors that affect costs, and how to find more information on affordable policies.
How Much Does Product Liability Insurance Cost
A typical industry rate for product liability insurance premiums on an annual basis is around 25 cents per $100 of annual revenue. This means that if you sell $100,000 worth of products in a given year, your typical product liability premiums in a year will be (.25 / 100) * $100,000, or $250.
However, this cost is highly dependent on the risk level of your business, industry, and products. For businesses whose products are not likely to lead to large, expensive claims, annual premiums can be low as 15 cents per $100 of annual revenue. At the other end of the spectrum, businesses with a higher risk profile may pay $1.50 per $100 of annual revenue or more to account for the greater potential costs to the insurer.
Factors That Affect the Cost of Product Liability Insurance
As mentioned above, insurers will consider a variety of factors when assessing a business’s potential risk exposure to product liability claims and set rates accordingly. Industry is typically the most significant consideration, but it is not the only factor that will influence the cost to obtain a product liability policy. An insurer’s assessment of a business’s product liability risk will usually include the following:
- Industry – Industry is the most important factor when obtaining product liability coverage because the potential harm varies by the type of products sold. For instance, pharmaceuticals are an industry with high risk of product liability claims because a defective drug could create widespread harm to people’s health.
- Products – Insurers may look at the nature of a product that a business sells and how it is designed, manufactured, and marketed to better calibrate the risk of insuring the business. Additionally, an insurer will consider the number of products a manufacturer or seller deals in because additional products increase the number of potential sources of a liability claim.
- State laws – Because state laws vary on who can be held liable for harm caused by a product defect and to what extent, the risks associated with insuring a business can be higher in some states than others. For instance, in states where sellers and manufacturers can be held equally liable for product defects, like California and Texas, product liability insurance costs for retailers may be greater. On the other hand, eight states, including Colorado, Michigan, and Tennessee, place some limits on the amount of damages that can be paid out in product liability claims, which lowers the risk for insurers in those states.
- Revenues – A business’s revenues are one of the factors courts weigh when determining how much a company that is found liable for a product defect can and should pay in damages. Accordingly, insurers will also consider this information to estimate potential risk.
- Coverage limits – Policy coverage can start around $100,000, but many businesses require more if their risk exposure is high. Businesses should expect to pay more in premiums for a greater amount of coverage.
Getting a Product Liability Insurance Quote
Online insurance portals are probably the most convenient way to get a product liability quote. You can visit your chosen insurance provider’s website or use comparison sites that conveniently provide multiple quotes.
Getting a product liability insurance quote online is straightforward. The sites will prompt you to fill in some details needed to narrow down your policy options. From there, the site will display policies that match your requirements, and you can choose the policy you prefer.
Once you have an online quote in hand, it is worth checking the quotes with a customer service representative. The reason for this is that the insurer may offer different prices or discounts that are not updated on a comparison site. Another option is to visit an insurance carrier’s website and use a live-chat feature to inquire further about your quote.
Comparison sites are good for getting quotes quickly, but getting quotes online sometimes makes it more difficult to judge the quality of a policy. Many insurance policies available on a comparison site are generalized and don’t account for the unique circumstances your business may have. If you have a question about policies, comparison sites and online insurance portals will likely not be able to provide you with enough information.
If you want to know the full details of a product liability insurance policy, it’s better to call an insurance company representative directly. This allows you to discuss the different types of policies they have and how each policy is suited for your needs. You can also talk to an insurance broker who can advise you about the intricacies of different insurers’ product liability offerings.
Finding Cheap Product Liability Insurance
If you are part of a product’s supply chain and you wish to save on the cost of product liability, you should first investigate whether you already have coverage in some other form. There are two main situations in which this might be the case.
As a business owner, the first scenario you should investigate is whether your existing general liability policy includes coverage for product liability. If you operate in a business with a low risk of facing product liability claims, the more limited coverage available in a general liability policy may be sufficient to cover the risks that you will face. This will save you the expense of purchasing a standalone policy.
The second scenario to consider is whether others in the supply chain have product liability coverage that covers your liability. If you are a vendor, ask your manufacturer if they provide vendor coverage. This coverage applies to all vendors in the supply chain, including wholesalers and retailers. If you distribute products from various manufacturers, you must ensure that you have vendor coverage for each one.
While these options can save you the cost of another insurance policy, it is important to recognize that choosing these options may still leave you exposed to product liability. For instance, general liability coverage may have a lower payment limit than a standalone policy, while relying on another business’s policy could leave you on the hook if the terms of their policy change or the policy lapses without you knowing about it. If you own a business that deals in high-risk products, such as chemicals or medical instruments, your liability exposure is high enough that you likely need a standalone product liability policy.
Check Out Comparison Sites
Comparison sites help you compare the premiums offered by various insurance carriers to help you choose the right one. However, no single comparison site can get you quotes from every insurance company. Some exclusive insurance carriers may not even be listed. Always check more than one site and acquaint yourself with different packages.
Furthermore, it’s important to remember that comparison sites make revenue from advertising and sponsorship. Therefore, the insurance package or carrier they show at the top isn’t always the best available offer. They could have been paid to display that particular carrier at the top of the listing. Many sites also make money through ‘click-throughs,’ so they might ask you to redirect to an insurer’s website. Every click will make them money.
While most comparison sites are legitimate, it’s still wise to take online listings with a pinch of salt. It’s also important to remember that the cheapest isn’t always the best. Comparison sites may tempt you by showing low, discounted policies, but not all of them deliver much value. These discount policies may not provide you with enough coverage, and you might end up paying for damages yourself.
Finding the Best Product Liability Insurance
With so many different state laws on product liability and many different factors contributing to a business’s risk profile, it can be difficult to know exactly which policy will best meet your business’s needs. A lot of basic information is easy to find, but it can be difficult to make sure that all the details of a policy give you the coverage you need.
Comparing Product Liability Insurers
Whether you work with a broker or agent or you just evaluate the options yourself, you should know some of the key areas where insurers and their policies will differ so that you can make informed decisions about your coverage. Here are some of the key factors to keep in mind.
Coverage Options & Policy Limits
Coverage levels will be one of the most important considerations for business owners when selecting a product liability insurance policy. As has been discussed elsewhere in this guide, the needs for product liability insurance vary widely by industry, product type, sales, and other factors. For low-risk products, a general liability insurance policy may be sufficient to address any claims that arise, but in higher-risk industries, standalone product liability policies with higher coverage levels are virtually a necessity.
If your business operates in a high-risk industry, you may find that some insurers will decline to cover your business or limit how much they will pay out in liability claims. You should think carefully about the likelihood that you will face liability claims and how much they might cost so that you will not be left responsible for paying the costs associated with claims once your coverage runs out.
In evaluating policies, you should take note of each insurer’s rules and requirements around reporting claims. If a policy is very strict in establishing deadlines to report claims, the types of claims that qualify for coverage, or particular reporting procedures, you may find it difficult to actually get coverage when claims arise. You can look at potential policies from multiple insurers to identify which reporting procedures are easiest to navigate. Once you have chosen a product liability policy, you should make sure that your business’s own internal policies and procedures align with the insurer’s reporting requirements.
Premiums & Deductibles
Premiums and deductibles are the out-of-pocket costs that the insured will pay for coverage. Because they affect the bottom line, these represent one of the main factors business owners will consider when comparing policies. A premium is the amount that a policyholder pays to retain the coverage, usually paid on a monthly basis or at some other regular interval. A deductible is the amount that the policyholder must pay before coverage kicks in.
Like other elements of a policy, the specifics will vary according to the business’s risk profile. High risk businesses may have higher premiums, higher deductibles, or both. Some policies may offer lower premiums but put more of the risk on the policyholder by having a higher deductible. Insurers might also structure policies differently depending whether they are on a “per claim” basis, which considers the cost of each individual claim relating to a product, or a “per occurrence” basis, which groups together all claims relating to a particular issue with a product.
In addition to considering what an insurer offers to meet your business’s needs, it can also be helpful to hear about other customers’ experience with the insurers. If an insurer has poor customer satisfaction or engages in questionable business practices, it may be one to avoid even if the terms of the policy look good.
Sources to consult for information on insurers’ reputations include JD Power and the Better Business Bureau. JD Power compiles ratings from customers to provide an overview of a company’s offerings and customers’ level of satisfaction. The Better Business Bureau is an organization that compiles information about customer concerns and rates businesses based on how trustworthy they are in their operations.
Product liability claims can be extremely expensive, especially if your business operates in a high-risk industry or reaches a large number of customers. This means that when seeking out product liability policies, business owners should be careful to evaluate the financial strength of the insurers who would be paying the claims. If the insurers are not in good shape financially, it could affect their ability to pay claims-and potentially leave business owners on the hook for legal costs, damages, and other expenses related to product liability.
One of the best ways to check an insurer’s financial strength is to reference the ratings from one of the major credit rating agencies: AM Best, Fitch, Kroll Bond Rating Agency, Moody’s, or Standard & Poor’s. Each of these organizations evaluates businesses’ financial health using their own unique formulas. Because the agencies consider different criteria (or weight factors differently), it is usually best to check multiple ratings to get a good picture of an insurer’s financial strength.
Product Liability Insurance for Small Businesses
Most small business owners are not well aware of the potential risks involved in running a business. Consequently, they may ignore the need to protect themselves from claims and damages incurred by their products.
When choosing liability insurance for a small business, your business’s size and revenues do not matter as much as the nature of the business’s operations, including the industry and types of products you deal in. For example, the insurance policy for a small business electrical contractor will differ from a small food establishment because the nature of the risks associated with each are different.
Small business owners with lower risk classifications may be eligible for a business owners insurance policy, depending on the type of business and its annual sales. This type of policy bundles together multiple forms of coverage, like property and liability, and may be sufficient to cover most of the business’s needs. These policies may provide coverage for revenue loss or extra expenses incurred as a result of claims against the business, and general liability insurance sometimes provides coverage against bodily injury and property damage to customers.
The following characteristics will disqualify a small business from being eligible for a business owners policy:
- The business has too large a premises
- The business is in a high-risk category
- The business has specialized operations
- The liability limits exceed the BOP coverage limits
Related factors may play into the cost of a policy as well. Cost estimates for a small business’s insurance policy will fluctuate based on the company’s functions, annual sales revenue, previous claim history, and the level of risk attached to the business products.
Even if you are eligible for a business owners policy, it is important to remember that this may not provide adequate coverage for some of the specific risks or characteristics of that particular business. In such cases, product liability coverage is a wise investment.
For small business owners, the Hartford offers the best product liability insurance policies. The Hartford’s policies deliver a combination of low cost and good coverage levels, especially for smaller enterprises with a lower risk profile.
Considerations for Cosmetics
Cosmetic companies are one industry that are likely to see liability claims lodged against them. Chemical-based cosmetics are particularly susceptible to environmental degradation and contamination, which makes them a target for claims. Cosmetic companies require protection that covers their manufacturing premises, storage facilities, and transportation.
As with businesses in other industries, general liability insurance provides coverage for many scenarios. But given the potential health risks associated with cosmetics and their widespread use with consumers, businesses in the cosmetics industry could end up paying out large amounts in damages when faced with a claim. Incidents arising from a cosmetic product can also negatively affect a company’s brand reputation, with bad press and decreased sales. The potential for damages and lost business make it important for cosmetics companies to have a solid product liability insurance policy to provide protection.
Due to the nature of the cosmetics business, insurance policies have to be customized to offer insurance protection from specific claims and damages, such as allergic reactions. Luckily, some insurers have special expertise in coverage for cosmetic manufacturers, importers, wholesalers, or retailers and are well-versed in the cosmetic industry’s nuances.
Product liability insurance for cosmetics is similar to other liability insurance plans: the specifics of your plan will depend on the nature of your product, your annual sales volume, the origin of your product, and your sales stream. Some products are classified as low-risk since they pose little danger of causing any damage to users. Other products, which are vulnerable to temperature differences and meant for specific skin types, can be classified as high-risk and have higher premiums.
Generally speaking, a basic policy for a cosmetic brand should cost around $1,500 or lower per year. To determine the specific costs and terms for your business, the insurance carrier will consider the following questions:
- What is the insured product?
- How many products will be distributed?
- Who will be using these products?
- How long are they supposed to last?
- Who manufactured them?
- Where are they manufactured?
- How clearly defined are the instruction and directions?
- What are the claims made by the manufacturer about the product?
You should make sure to discuss the coverage with your insurance representative to understand your coverage options and ensure that you have the right policy to cover your needs.
For holistic coverage, Embroker is your best bet. It offers the lowest premium rates and broadest range in the cosmetic industry.
Considerations for Food Products
Product liability insurance for food and beverages is challenging for the conventional insurance market, which generally focuses on large assets like cars, equipment and jewelry. In contrast, food and beverages are perishable goods, and most standard insurance carriers will not entertain product liability for them due to the inherent risk.
However, it is possible to find special insurance policies for perishable items that cover everything in the food and beverage industry. These policies cover anyone responsible for the design, manufacture, sale, or distribution of an edible product or an ingredient that goes into making an edible product. This can even apply to importers and distributors of food and beverages.
There is no defined cost range for food and beverage liability insurance. Instead, insurers will evaluate a food product’s recommended usage along with a business’s annual sales volume and history of claims and damages before determining the cost.
One factor that does not play a large role in determining premiums is the cost of the product itself. Insurers instead focus on sales volume and product conditions when calculating a premium. Products with a short expiration duration tend to come with the highest risk and highest associated insurance costs.
Insurance companies inspect the food and beverage products and consider the following factors before determining premiums on a policy:
- The nature of the food product
- The quantity of the product distributed in the market
- How long the food product is expected to last
- Who prepared the food product
- The ingredients used
- Whether the product is served directly or has a separate sales channel
If you are a business owner in the food and beverage industry, you should also consider these factors and assess your own tolerance for risk. This analysis will help you determine the right amount of insurance coverage to purchase.
For food product liability insurance, consider Barbary Insurance, which offers tailor-made insurance packages for the food and beverage industry.
Considerations for Medical Products
The medical equipment business is lucrative, but it also carries a significant amount of risk. The liability for medical products is high because they are used on the human body, with the potential to put people’s health and safety in danger. In recognition of this, pharmaceutical companies, health insurance carriers, and retail establishments require manufacturers and vendors to have product liability insurance on every medical product they supply. Even as a retailer, you could be held liable if there is an injury due to the product you sold.
The risk of physical injury plays a big role when talking about insurance for medical products. Any good product liability insurance policy for medical products will be tailor-made to cover all kinds of bodily injuries and even death. Liability coverage may pay the affected person or firm for the cost of care, the loss of services, and restitution for death resulting from the injury. Additionally, if your medical product causes damage to or loss of use of someone’s property, liability coverage will cover the value of the damages. The policy should also cover any legal costs borne as a result of the claim, including the cost of defending your business.
Businesses dealing in medical products should be prepared to pay a significant cost for product liability coverage. Because claims relating to medical injuries or death can take a lot of time and money to resolve, most insurance companies will have caps on coverage along with higher deductibles and premiums. Costs for product liability policies in the healthcare industry is higher than just about any other sector.
For the best product liability insurances for medical products, consider choosing State Farm. Their packages provide comprehensive coverage for medical and health products.
Best Product Liability Companies Overall
State Farm (Best Overall)
Coverage Options & Policy Limits
State Farm offers industry-specific commercial insurance options, including product liability policies, for dozens of different business types. Like other insurance providers, State Farm is able to customize coverage and limits on its liability products depending on the business’s industry, size, and jurisdiction. State Farm refers inquiries on its website to a local agent who will work with you to find the right coverage levels for your business given whatever liability risks you may have. State Farm’s commercial liability policies are generally offered in $1 million increments.
State Farm also has a robust selection of personal insurance offerings, which may be helpful for small business owners who wish to bundle coverage to save money.
State Farm encourages policyholders to reach out to their local agent for help in the event of a claim against them. These agents will advise you and work with you to document the claim throughout the claims process. The company also has good online and mobile technology tools for starting and tracking claims.
Premiums & Deductibles
State Farm tends to have some of the more affordable rates for commercial liability policies, including product liability. This is especially true at lower levels of coverage for businesses that are smaller or have a lower risk profile. At higher levels of coverage, premiums for State Farm can be more costly.
State Farm has excellent customer satisfaction levels, with JD Power rating State Farm at 856 out of 1,000 in a recent study of customer satisfaction for small business insurance providers. Additionally, the Better Business Bureau gives State Farm a strong A+ rating.
State Farm demonstrates excellent financial strength across the major credit rating agencies. State Farm has the highest possible rating from A.M. Best, an A++, along with very good ratings of AA from S&P and Aa1 from Moody’s. State Farm is considered a highly reliable payer of claims based on these ratings.
State Farm is one of the strongest overall choices you can make for product liability coverage. Among all of the insurers considered for this guide, State Farm has some of the lowest rates, best customer ratings, and strongest financial resources, while their coverage options are well-designed according to industry type and other business characteristics.
The Hartford (Best for Small Business)
Coverage Options & Policy Limits
The Hartford offers business owners policies and general liability policies with the option to purchase an endorsement for additional liability coverage depending on your business’s needs. The Hartford’s basic liability policies are convenient, affordable options for small businesses and those with lower risk exposure, but the payment limits for product liability claims under these policies tend to be lower. However, The Hartford does provide options for expanded coverage with higher payment limits for businesses in industries where product liability risk is greater. The Hartford recommends getting a quote from their website and then working directly with an agent to identify the right coverage levels for your business.
The Hartford has a simple claims reporting form through its website and additionally provides 24/7 support through its claims center. Even if you do not have a lot of information about the claim against you, The Hartford’s easily accessible tools make it simple to start the claims process.
Premiums & Deductibles
The Hartford’s online quote process makes it easy to find information about your potential costs on a liability policy. You can fill out a short form in under 10 minutes on The Hartford’s site with basic information about your business and the type of policy you need to return different options about premiums, deductibles, and coverage levels.
The Hartford is a nationally recognized name in the insurance industry with more than 200 years of history. In JD Power’s recent ratings of small business insurers, The Hartford earned a customer satisfaction score of 819 out of 1,000, which was below the industry average. However, the Hartford also has a strong A+ rating with the Better Business Bureau.
The Hartford does well with credit ratings agencies in an evaluation of financial strength. The Hatrford’s ratings are an A+ with S&P, an A+ with A.M. Best, and an A1 with Moody’s. All of these indicate that The Hartford is likely to be reliable and have the resources to pay out claims.
The Hartford is a good choice for small businesses and others in the supply chain, like retailers, who have lower risk exposure from product liability. While a lot of The Hartford’s coverage is not as extensive as some other competitors, affordable rates make it a good choice for those at a lower risk of facing product liability claims, and it does offer some more complex liability coverage for those who need them.
Embroker (Most Affordable)
Coverage Options & Policy Limits
Embroker’s online tools make it easy to customize product liability insurance policies to your exact needs and specifications. Embroker offers 24-hour assistance through chat, email, or phone, so you can go to Embroker’s website and work directly with a professional who will lay out your coverage options and help you understand the pros and cons of each policy.
Embroker’s claims support is one of its many strong features. Once you have gotten in touch with Embroker about a claim, they will guide you through the process of documenting and submitting information about the claim and quickly let you know what expenses will be covered so that you can plan accordingly. Embroker’s 24/7 support and real-time claim tracking dashboard allow customers to stay on top of their claims.
Premiums & Deductibles
With a more technology-based approach to setting policies than its competitors, Embroker uses sophisticated algorithms to better identify a policyholder’s risk levels. This allows Embroker to offer lower premiums for many customers.
Further, Embroker’s customer-friendly approach allows for a great deal of customization. This includes allowing you to choose your deductibles when selecting a policy.
Embroker is a newer insurer, so its reputation in the industry is not as well-established as other competitors. Accordingly, Embroker does not currently have any rating from JD Power or the Better Business Bureau. Despite this, Embroker has already made a name for itself as a brokerage and insurer that makes the process of obtaining insurance easier for business owners, regardless of whether those customers opt for a policy directly with Embroker or from a different insurance carrier.
Embroker is backed by the insurer Munich Re, which carries good financial strength ratings from the major ratings agencies. S&P rates Munich Re at the AA- level, A.M. Best offers an A+, and Moody’s gives an Aa3.
Embroker has targeted many of its services toward startup businesses, so Embroker may be best for new business owners. Customers will appreciate Embroker’s use of technology to customize policy coverage, keep prices low, and deliver quality customer service.
Coverage Options & Policy Limits
Nationwide has a great deal of expertise in commercial and business insurance and has offerings for a variety of business sizes and industries. Nationwide is particularly strong for small business products like business owners’ policies and general liability, but will also provide endorsements for other liability coverage as needed. Nationwide customizes insurance solutions by industry type, serving customers in industries as diverse as retail, food and agribusiness, construction, and professional services.
One additional plus for small business owners is that Nationwide also offers many personal insurance products like home, life, and auto coverage. This may make it easier for small business owners to manage all their coverage through one provider, and bundling policies frequently means discounted costs.
Nationwide makes it easy to report claims through its online portal and mobile app. Nationwide also has claims professionals available for live response as needed.
Premiums & Deductibles
With a focus on serving small businesses and a large national network, Nationwide is able to offer affordable, competitive rates. Because Nationwide provides so many different coverage options, the best way to get an accurate quote for premiums and other policy terms is to contact an agent directly.
As one of the country’s largest insurers, Nationwide is perhaps best known for its personal insurance products, but Nationwide’s commercial insurance products are also relatively well-regarded. Nationwide is accredited by the Better Business Bureau with an A+ rating, while JD Power’s recent study of small business insurance providers gives Nationwide a score of 854 out of 1,000, which is one of the highest highlighted in this guide.
As a Fortune 100 company, Nationwide is among the largest and most stable insurers in the market. Credit rating agencies support this assessment, with both S&P and A.M. Best rating Nationwide at an A+ on their respective scales and Moody’s giving Nationwide a strong A1 rating.
Nationwide is a trusted all-around option for business insurance, including product liability. Nationwide’s size and diverse products allow any business owner to find the right coverage for their needs, while Nationwide’s affordable rates and personal insurance product offerings may be especially desirable for small business owners.
Chubb (Custom Policies)
Coverage Options & Policy Limits
Chubb offers highly customizable, “boutique-style” product liability coverage. Because needs are so different across businesses and jurisdictions, Chubb tailors its policies to each customer, using a team of in-house experts with direct experience working across a variety of industries.
As one of the largest insurers in the world, Chubb comes with the added advantage of having the resources to support higher policy limits and coverage on harder-to-insurer products like heavy machinery and medical devices.
Chubb offers an impressive suite of tools and services for supporting customers throughout the claims process. If you file a claim, Chubb manages the entire process in-house from intake to resolution through its ESIS ProClaim system. In keeping with their customer-friendly, customizable approach, Chubb recognizes that each company and each claim are different and tailors its services accordingly. The ESIS ProClaim system even provides consulting services that help businesses reduce liability risk, improve product safety, and manage reputational damage.
Premiums & Deductibles
Chubb’s policies can start as low as around $400 per year but can be much more expensive. This is due to Chubb’s willingness to insure in higher-risk industries and products and the top-notch consulting services Chubb offers on top of its insurance coverage. You can reach out to Chubb and work directly with an agent to learn more about your potential premium and deductible costs.
Recently, Chubb took the second highest spot in the JD Power rankings for small business commercial insurance, with a rating of 855 out of 1,000. Chubb is the largest publicly-traded insurer in the world, but despite its size, it has a good reputation because of its commitment to tailoring insurance offerings to meet customers’ needs.
Chubb possesses a very strong financial outlook, with some of the highest ratings of any insurer from the major ratings agencies. S&P rates Chubb at the AA level, A.M. Best gives it the highest rating of an A++, and Moody’s offers a high grade of Aa3. In part due to Chubb’s large size and financial resources, the ratings agencies feel confident in Chubb’s ability to pay out claims.
Chubb is a great all-around option for product liability insurance. Between its excellent financial strength, strong and customer-focused reputation, and the additional services it provides to help business owners minimize risk, most business owners would be well-served with a policy from Chubb.
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