Product Liability Insurance

Types of product defect claims

• Design defects: the product's design makes it unreasonably dangerous, even when made correctly
• Manufacturing defects: a flaw introduced during production makes a particular unit dangerous
• Marketing defects (failure to warn): missing, unclear or inadequate instructions or warnings

Who needs product liability coverage

• Manufacturers of finished products or components
• Distributors and wholesalers, who can be named in claims even though they did not make the product
• Retailers, including brick-and-mortar shops
• Online and marketplace sellers, many of which must show proof of liability coverage to sell on certain platforms
• Importers and private-label sellers, who may be treated like the manufacturer if the actual maker is overseas
• Food and beverage producers, cosmetics and supplement makers, and other consumable-product businesses

What product liability insurance typically does not cover

• Product recalls. The cost of recalling and replacing products usually needs separate product recall coverage.
• Damage to your own product. Repairing or replacing the defective product itself is generally excluded.
• Contractual liability beyond what the policy allows, such as broad indemnity promises to a retailer
• Known defects or claims that existed before the policy began
• Certain high-risk products that insurers exclude or write only under special terms

Policies vary, so review exclusions carefully, especially if you sell products in higher-risk categories.

What affects the cost

Insurers commonly look at:

• What the product is and how it is used, such as a children's product versus office supplies
• Annual sales or gross receipts from products
• Where products are sold, including whether you export
• Whether you manufacture, import or only resell
• Quality control, testing and labeling practices
• Vendor agreements and whether your suppliers name you as an additional insured
• Claims history

Vendor endorsements and retailer requirements

Retailers, distributors and marketplaces often ask the manufacturer or supplier to add them to its liability policy as an additional insured, sometimes called a vendor endorsement. This can give the retailer coverage under the supplier's policy for claims arising from the supplier's products, subject to the policy terms. If you are a supplier, expect these requests and share them with your agent. If you resell other companies' products, ask your suppliers for the same protection and keep the certificates and endorsements on file.

Ways to reduce product risk

• Keep records of design, testing and quality control
• Use clear instructions, labels and warnings
• Track batches or lot numbers so a problem can be isolated
• Require suppliers to carry product liability coverage and name you as an additional insured
• Review contracts with retailers and marketplaces for indemnity and insurance requirements

Information to have ready for a quote

• A description of each product or product category and how it is used
• Annual product sales, current and projected
• Whether you manufacture, import, private-label or resell
• Where your products are sold
• Supplier and retailer contract insurance requirements
• Claims history for the past several years