Product Liability Insurance: Why Retailers and Online Sellers Can’t Afford to Go Without It

Contaminated food causes a customer to become ill, a defective lamp ignites a fire in a home inflicting significant property damage, and unknown materials in clothing sold to a customer cause them to suffer a severe allergic reaction. These unpleasant scenarios could result in an expensive lawsuit that might force a business or online seller into bankruptcy.

It might sound fanciful, but it happens.

For retailers, online sellers, e-commerce companies and other enterprises, product liability claims and lawsuits could spell the end of their businesses.

That’s why product liability insurance is vital to include in a business insurance policy. Let’s dive into what product liability insurance is and why any company selling, distributing, or manufacturing products sold to the public is essential:

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What’s the Difference Between Product Liability and General Liability Insurance?

Product liability insurance can be purchased as a standalone policy but is often included with general liability insurance and is detailed in your policy documents as “products and completed operations” coverage. Each type of insurance is designed to cover different scenarios.

• Product liability insurance covers a business or independent seller for the products they sell. It is designed to cover third-party bodily injury and property damage claims caused by a product a customer purchases from them – even if the business that sold the item did not manufacture it. As a retailer or seller, you are liable for any product you sell, distribute, or manufacture, including food and beverages. 

• General liability insurance is designed to cover third-party bodily injury and property damage claims that harm a customer or individual on your premises, such as a trip and fall, or are physically or financially harmed by your business’s regular operations. It also covers personal or advertising injury, such as allegations of defamation, and tenant’s legal liability for covering costs to repair or replace a property you rent or lease.

What Causes a Product Liability Claim Against a Small Business or Retailer?

Several things can trigger a product liability claim or lawsuit against a small business or retailer selling products that injure a customer, cause illness, damage their property, or lead to them suffering a financial loss, such as:

• Defective products due to manufacturing or design flaws
• Improper or misleading labelling of products
• Failure to warn of potential risks or side effects of a product through disclaimers
• Counterfeit products that don’t meet safety standards
• Contaminated food or beverages causing illness

Examples of Product Liability Claims

Any product or goods sold by a business could cause an injury, illness, or property damage and lead to a product liability claim or lawsuit. For instance:

• An online seller or e-commerce business sells a battery for an electronic device that explodes or starts a fire, causing burns or property damage.

• A spa owner sells a skincare product to a customer that causes the customer to suffer an allergic reaction.

• A convenience store or restaurant selling packaged or prepared food that is contaminated and causes a customer to suffer an allergic reaction or food poisoning.

• A hardware retailer sells a defective space heater that overheats and ignites a fire, damaging a customer’s home or office.

One noteworthy Canadian product liability lawsuit in 2009 involved a 13-year-old boy in Kelowna, B.C., who suffered a severe brain injury when the fork of his mountain bike failed because of an alleged defect with the bike’s design. That case was settled out of court, but it highlights the product liability risks businesses selling goods face.

4 Ways to Minimize Product Liability Risks

Here are four steps to take to avoid the risk of a product liability claim being filed against your business:

1. Do Quality Assurance Tests

A quality assurance program ensures that the products a business sells meet or exceed safety standards and regulations in your province. It helps to identify defects or issues with products before they’re sold to the public. Offering high-quality products drives customer loyalty and repeat business. 

2. Check Product Labels

Think about the goods and items your business sells. If a product could harm someone or have potential side effects, the labelling should clearly and specifically spell that out. 

3. Establish Product Recall Practices

Monitor any product recalls made by manufacturers and suppliers for the items your business sells, and have a process in place to contact customers expeditiously if a product they purchased is recalled for safety reasons.

4. Maintain Accurate Documentation of Products

Keeping detailed, accurate records of every product’s lifecycle is critical. For products your business did not manufacture, use the documentation provided by the manufacturer or supplier. Also, document your business’s procurement process, including shipping and delivery details, supplier agreements, and sales transactions.

Tip: It’s advisable to consult legal experts to assess your business’s exposure to potential product liability claims and develop strategies to minimize those risks. Legal expense insurance is an affordable way to help cover legal expenses if you need to hire and retain a lawyer or require legal advice.

How to Get Low-Cost Product Liability Insurance Fast

Protect your business and finances from claims and lawsuits due to faulty products with a comprehensive product liability insurance policy from Zensurance.

Fill out an online application now for a free quote in less than five minutes.

Our team of knowledgeable brokers will shop our partner network of over 50 insurers to get the low-cost policy you require and customize it to suit your specific requirements and budget.