Product Liability vs. General Liability: Which Insurance Do You Need?
What is Product Liability Insurance?
If you are in the business of producing products, then you probably know that there is always a risk for a recall. Even the biggest and most regimented manufacturers have had product recalls.
A product recall can happen for any number of reasons from tampering, contamination whether intentional or not, or a design flaw.
Often, having to do a product recall not only will cost your business a ton of money, but it can also hurt your reputation depending on the reason for the recall. It can ultimately destroy your business if you are not prepared.
Your business is probably not in a position to do a full product recall, replacing all the products with a new and improved version, while also working on your public relations.
Not to mention that if the issue with your product is traced back to you, you could potentially lose vendors as well.
Product Liability insurance, also called Product Recall insurance, is designed to help you do all of those things.
Product Liability insurance offers a few different coverage options and availability. Work with an experienced insurance advisor to make sure the policy is a good fit for your business.
Top 6 Product Liability Claims
These are the six most common problems that can go wrong with your products, leading to a claim made against your business:
If the product you have produced is deemed to be defective because of a mistake in manufacturing, or even bad or missed testing of the product, this could turn into a huge claim.
Example: A toy shop has to recall a specific toy part because the toy made for children causes choking hazards.
Some products can be damaged on purpose which will cause harm to someone or something. This can happen by a disgruntled employee who wants some money, whether one of your own or an employee of the company that is selling your products.
Unfortunately, once the products leave your facility the control you have over them is over, unless you invest in tamper-proof packaging which is not always cost-effective.
Tampering can be a real issue, most often with the food service industry. Although an old story, the "Swill Milk" issue in the 1850s is a great example because of the amount of tragedy. The milk was tampered with maliciously, and it ended up actually killing 8,000 children.
Regardless of the type of controls, you have in your manufacturing business, you cannot always guarantee that your employees are happy and won't do something to try to damage your reputation out of retaliation.
Accidental contamination can happen. Often, it is because either a production line worker is ill, or an extra ingredient is accidentally added.
Example: Razor blades from a production plant accidentally fell into stuffed animals made for dogs.
Mislabeling can be a huge claim due to people with allergies more than anything. If all ingredients are not listed on a product and a consumer has an allergic reaction, that can turn into a claim that could cost tens of thousands of dollars if not more.
Plus, then you would have to pull all of the remaining products off the shelves and reprint new labels for the products that will replace the mislabeled ones. You can see how quickly one small mistake can add up.
Some companies will use deceptive marketing practices to be able to sell products. While your manufacturing business may not do that, one of your vendors may.
And because it is ultimately your product, you will be held liable if something goes wrong from the use of your product.
What is General Liability Insurance?
General Liability insurance will probably be the first insurance policy that you purchase for your business. It is a great starting point when it comes to protecting your business liability.
General Liability insurance gives you coverage for bodily injury and property damage claims that are so common. This includes slips and falls, personal advertising injuries like slander, and damage to others' property.
Example: A customer is touring your manufacturing facility and slips on the floor and hits their head. Or, if you are delivering a product to a vendor and run into their mailbox that would be covered under property damage.
Do You Need Product Liability if you Already Have General Liability?
The short answer to whether you need Product Liability if you already have a General Liability insurance policy is absolutely.
If you are in the business of manufacturing and selling products, you must have both insurance policies to ensure that you are properly insured with no gaps in coverage.
Each policy will supplement the other. Making the investment upfront in turn for peace of mind of protection from all sorts of claims is wise.
There are times when Product Liability can be endorsed onto a General Liability policy, so be sure to check with your insurance agent for all of your options.
General Liability and Product Liability are essential for your business to continue to operate smoothly and make money.
If you decide to only have General Liability and take the risk, will you be able to reach into your pocket if someone tragically died as a result of your product being contaminated or even tampered with?
All it takes is one denial of a day off to an employee to cause them to be so angry they will tamper with your product. While it may sound silly, it is an unfortunate reality that employers like you face daily.
With the average claim costing over a million dollars, why wouldn't you invest in the coverage to keep your business safe?
How Much Will Product Liability Cost You?
A manufacturer will certainly pay more than a vendor as their risk is higher, but it is still affordable when compared to the amount one product issue could cause your business.
There will be some factors that the insurance company will take into consideration when pricing your policy:
- The type of product you are selling, with food and medicine, certainly being riskier.
- If you import or export
- Coverage limits including deductibles
- Claims history
- Your experience
We can discuss all of your options, whether that means adding it as an endorsement to your existing General Liability policy, or if it makes more sense coverage wise and financially to purchase a completely separate policy.