Products Liability Insurance

Example

“The toy manufacturer's products liability insurance covered the $2 million settlement when a child was injured by a defective toy that had sharp edges not disclosed in safety testing.”

Memory Tip

Products liability = 'If your Product causes Problems, Policy Pays' - the three P's of product protection.

Why It Matters

Product liability claims can bankrupt businesses with settlements reaching millions of dollars. Even small retailers selling others' products can face lawsuits, making this insurance essential for anyone in the product supply chain to protect their assets and continue operations.

Common Misconception

Many small retailers think they're protected because they didn't manufacture the product, but anyone in the supply chain can be sued. Additionally, people often assume this only covers manufacturing defects, but it also covers design flaws and failure to provide adequate warnings about product risks.

In Practice

A small electronics retailer with $500,000 in annual sales pays $2,400 yearly for $1 million in products liability coverage. When a customer claims a phone charger they sold caused a house fire resulting in $50,000 in damages, the insurance covers the legal defense costs ($15,000) and settlement ($35,000), saving the retailer from potential bankruptcy over a $20 product sale.

Etymology

The term emerged in the mid-20th century as product liability law developed, combining 'product' from Latin 'productus' (brought forth) with 'liability' from Latin 'ligare' (to bind), reflecting legal responsibility for manufactured goods.

Common Misspellings

Related Terms

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