Product Liability Insurance Guide for Small Businesses

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 1944 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 that 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 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 aprofessional liability insurancepolicy.
• Employee injuries.Workers’ compensation insurancecovers employee injuries and lost wages.
• Customer injuries. Customer injuries at your place of business, like slip and fall injuries, are covered bygeneral 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 insurancecovers 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

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).

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.

As with other types of insurance, the best way to get product liability insurance for your business—bundled in a BOP or on its own—is by requesting quotes from a few different insurance providers for comparison.