What Is Product Liability Insurance For Small Businesses?

It’s a fact of life: accidents happen.

Of course, risks will always be associated with creating, manufacturing, assembling, distributing, or selling products, but managing those risks is a key part of your business success. Product liability insurance can protect your business from potential legal and financial consequences arising from product-related claims.

Product Liability Insurance In a Nutshell

Product liability insurance is a specialized form of coverage designed to protect your business from covered legal claims and financial losses resulting from defective products—or even from their misuse.

For covered claims, coverage can include the business’s legal defense costs, settlements, and judgments in cases where a product causes bodily injury or property damage. Without such coverage, you could wind up writing checks for not only property or medical costs but also legal fees if one of your product’s consumers sues you.

For example, if your business manufactures automatic garage door openers and a defect in the design of the product causes it to fail, a customer could sue you for the costs of damage to their vehicle or a broken bone they might have suffered as a result of the opener failure.

Product liability insurance is an important protection for any business that creates, manufactures, distributes, or sells products. These types of businesses might include:

  • Retailers
  • Distributors
  • Manufacturers of entire products or component parts of a product
  • Assemblers
  • Online sellers (Amazon actually requires it for larger merchants.)

What’s Covered and What’s Not

Product liability insurance may provide coverage for a range of scenarios in which a business is potentially held legally liable for losses or injuries a consumer suffers. These can include:

  • Design defects. A product is inherently dangerous due to a design flaw.
  • Manufacturing defects. A product becomes dangerous due to an error in the manufacturing or assembly process.
  • Marketing defects. A product is marketed or advertised in a way that misleads or fails to warn consumers of potential risks.
  • Strict liability. A business is liable for a product defect, regardless of fault or negligence.
  • Improper warning or instructions. The risks of using a product—whether correctly or incorrectly—are not made sufficiently clear to the consumer.Although product liability insurance may provide essential protection against scenarios like those above, it does not cover every possible risk. Exclusions are related to scenarios for which a business could purchase another type of insurance to provide such coverage, for instance:
  • Workers’ compensation insurance. This type of policy provides protection for covered employee injuries.
  • Product withdrawal coverage. This coverage provides protection for the costs of recalling a problematic product for covered claims.
  • Manufacturer’s Errors & Omissions Coverage. Commonly referred to as professional liability, this coverage provides protection if the work you perform was done incorrectly.
  • Technology or cyber liability insurance. This type of insurance provides protection for covered incidents involving faulty software, hardware, or infrastructure related to information technology.

Choosing the Right Coverage

When selecting your product liability coverage, keep the following in mind:

  • Know your territory. Ensure your policy covers claims made in the countries where your products are sold.
  • Know your limits. Evaluate your business’s risk exposure and potential liability to determine the appropriate coverage limit.
  • Know your insurer. Ensure you’re dealing with an insurance agent who understands your business and is well-versed in all the types of coverage your business may need.

Depending on the type of products you offer, your potential risk exposure, and the size of your business, you may require up to several million dollars in product liability coverage. Working with a knowledgeable agent is a great start to protecting your business, so talk to one of our local insurance agents today, and we’ll help you get the coverage your business needs.

ERIE® insurance products and services are provided by one or more of the following insurers: Erie Insurance Exchange, Erie Insurance Company, Erie Insurance Property & Casualty Company, Flagship City Insurance Company and Erie Family Life Insurance Company (home offices: Erie, Pennsylvania) or Erie Insurance Company of New York (home office: Rochester, New York).  The companies within the Erie Insurance Group are not licensed to operate in all states. Refer to the company licensure and states of operation information.

The insurance products and rates, if applicable, described in this blog are in effect as of January 2024 and may be changed at any time. 

Insurance products are subject to terms, conditions and exclusions not described in this blog. The policy contains the specific details of the coverages, terms, conditions and exclusions. 

The insurance products and services described in this blog are not offered in all states.  ERIE life insurance and annuity products are not available in New York.  ERIE Medicare supplement products are not available in the District of Columbia or New York.  ERIE long term care products are not available in the District of Columbia and New York. 

Eligibility will be determined at the time of application based upon applicable underwriting guidelines and rules in effect at that time.

Your ERIE agent can offer you practical guidance and answer questions you may have before you buy.