Businesses on the fence about product liability insurance need only to search the internet for information about product claims and recalls for clear evidence that this is a "must have" for protection from the various regulatory commissions that will seek remedies for consumers.
With online information at their fingertips, consumers have become liability-savvy when it comes to products they purchase. Law firms are ready and able to represent plaintiffs on a contingency basis and bombard consumers with promises of financial windfalls. When it comes to actions regarding product liability, businesses need to consider the following five points:
1. Frequency: Currently product recalls are average two per day. The frequency can be attributed to the regulatory authority given to organizations like the Product Safety Commission, the Food and Drug Administration, and the National Transportation Safety Administration. You should also include national law firms that have the resources to haunt manufacturers with class action suits
2. Oversight: Since governmental oversight of products and their distribution has increased standards that manufacturers must comply with, increased civil and criminal penalties are a risk that businesses must mitigate. The FDA not only regulates products in the marketplace, but now they have the power to regulate how food is grown, harvested, and even processed.
3. Human Error: As long as humans are involved in production, it is impossible to guarantee that errors won't happen. Even with the most stringent safety protocols, errors happen that can result in a consumer injury or even death. When it comes to food products, the damage is not always limited to a particular product. For example, if a particular brand of food is recalled, over-zealous retailers may pull the entire brand from the shelf resulting in a massive financial hit to the manufacturer and distributor who must credit the retailer for the returned product. The act of regaining lost shelf space in a large retailer may be impossible without available resources. In this circumstance, a product liability policy will be invaluable for the business to be able to come out on the other side of a recall.
4. The Cost of a Product Liability Action: Although every case is different and most cases eventually settle, the cost of a product liability action is likely to put an uninsured manufacturer or distributor out of business. Damages that are taken into consideration regarding a settlement are as follows:
- Level of harm
- Lost Wages and loss of future income
- Pain and suffering
- Punitive damages
5. Low Cost of Mitigation: With any foreseeable risk, typically the most affordable method of mitigation is to transfer the risk to an insurance carrier. Even with the amount of settlements that have been paid historically, product liability insurance and product recall coverage remain an affordable means of financial protection. Knowing that just one action could result in financial devastation, it is incumbent upon business owners to transfer this risk to an insurer.
If your business provides any product to consumers, your company needs product liability coverage. In some cases, this coverage may be available as part of the General Liability or Business Owners' policy, but is important for you to confirm this with your insurance professional and not make any assumptions. The premium for this coverage will typically be based on the type of product, the sales volume, and the part your company plays in providing the product to consumers.
For more information and details about Product Liability and Product Recall Coverage, contact an insurance professional at Skyline Risk Management, (718) 267-6600 for free and confidential consultation.