While it’s something that service-based small businesses in Ontario don’t need to worry much about when it comes to their commercial liability insurance, for businesses involved with products, it’s crucial to their long term health and success.
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WHAT IS PRODUCT LIABILITY INSURANCE?
Typically included as part of a Commercial General Liability (CGL) insurance policy, product liability insurance offers the best protection for your business when it comes to claims of losses due to bodily injuries or property damage caused by malfunctions or defects related to your product.
If your business produces and/or sells a product, you are responsible for it.
The 3 most common areas of risk when it comes to a product are:
If there is something fundamentally wrong with the design of the product that leads to injury or damage, you could be held liable.
If the design is sound but there was a mistake in how it was built, you could be held liable.
If there is nothing wrong with the product design or manufacturing you could still be held liable if the product did not include sufficient warning labels or instructions.
WHO NEEDS PRODUCT LIABILITY INSURANCE?
Anyone who operates a business with any type of product involved requires product liability insurance.
A few examples of who needs product liability insurance:
- CATERING BUSINESSES
Product liability insurance can cover sickness caused by food or beverages.
- RETAIL STORES
The moment you start selling products you are vulnerable to product liability claims if a customer is injured as a result of using something they bought from your store.
Even if you’re not selling directly to customers, as the manufacturer or distributor of a product you could be held liable for a product defect.
Product liability insurance can also cover business to business risks including software developers and material suppliers.
HOW TO REDUCE YOUR RISK OF PRODUCT LIABILITY
We always say that while insurance is a crucial layer of protection for your business, the first line of defense should always be loss prevention.
Here are some ways you can help reduce your risk of a product liability insurance claim:
- ASSESS YOUR PRODUCT DEVELOPMENT
To reduce your risks you must first understand what those risks are.
Have your product evaluated from start to finish to identify any potential vulnerabilities associated with the design, manufacturing or marketing of your product.
You should also do the same for any suppliers you use.
- TEST YOUR PRODUCTS
Quality control procedures are a crucial way to help reduce the risk associated with your product.
Have your products tested often and thoroughly by outside resources. Testing the products yourself should also be done, but you may be too close to it. Your products being tested by others who don’t share the same familiarity with the product as you are important.
Product testing should be an ongoing process rather than a one-time effort so that you’re continuously ensuring there are no weak spots in the manufacturing process and that you’re up to date with all safety labeling considerations.
- MAINTAIN DETAILED RECORDS
It’s important to create and maintain documents that outline the steps involved in the design, manufacturing and sale of your products.
This will not only help you proactively identify any new risks, but it will also come in handy if you have a claim against you because it will show evidence of your meticulousness and emphasis on product safety.
- PROVIDE WARNINGS
Even if your design and manufacturing process is tight and even if your products are tested often, it’s smart to have in place a general warning about the use or consumption of your products as a “catch-all” for anything else you may not be able to see coming.
When your product is available to anyone in the public who is interested in buying it, you never know what situations could arise.
If you’re insured by Erie Mutual our legal assistance program could be of assistance.
WHAT DOES PRODUCT LIABILITY INSURANCE COST?
Like most types of business insurance policies, the cost of product liability insurance in Ontario varies based on many factors.
- Type of product
- Its intended use
- Revenue generated from sales
- How and where it’s manufactured
These are just some of the variables that go into determining what your product liability insurance policy will cost so it’s best to get a customized liability insurance quote.
Erie Mutual Insurance proudly serves the commercial insurance, farm insurance, home insurance and auto insurance needs of members throughout Southern Ontario including Haldimand, Niagara and Hamilton.
Please don’t hesitate to contact us with any questions you may have about this or any other topic related to your insurance.