Most business owners are aware that they should research getting business liability insurance coverage, but only a small percentage realize that there are significant differences in the types of liability insurance policies. Professional indemnity insurance, product liability insurance, and general liability insurance are the three main types, and they differ significantly on the types of claims they protect a business against.
To begin, let’s cover product liability insurance – the first step is to understand liability when it comes to products. Product liability, or the legal responsibility of an entity regarding their product and its relation to a consumer, is something that any entity in the distribution cycle of a product can bear, including manufacturers, distributors, refurbishers, resellers, and retailers. Any claim brought up by a consumer that alleges injury, damage, or loss due to the use of a product can be placed against any entity in the entire creation & distribution cycle of a product.
When it comes to manufacturers, product liability lies in the quality of the product workmanship, quality of materials used, the functioning of each individual component in the product, the reliability of the design of the product, and the warning labels placed on the product or in the packaging. If any of these elements are missing or inferior, the chances of product liability claims can be much higher.
The other entities who handle the product in any way, including those between the manufacturer and the retailer, are also liable for product-related claims. In the United States, a consumer with a product claim has full rights to see the names of all businesses who had anything to do with a product and can bring a suit against any of them.
According to the insurance provider ( Products-Liability-Insurance.com ), when it comes to the person bringing a claim against a company concerning a product, they don’t even have to be the one who bought or used the product. A complete stranger can be walking past someone using a product, and if that product causes the stranger to suffer loss or damage or injury, they can bring a lawsuit against a company or companies they feel are responsible.
Professional indemnity insurance is better suited to a business who provides services, such as an accounting firm, a medical doctor, an architect, or a consultant. These providers are at risk of having a claim brought against them if the services they provide cause someone to suffer loss or damage. Many times, an omission is the number one cause for claims. Consider if an accountant omitted some crucial information from financial statements; this could be devastating for a business.
General liability, while it does contain some level of product liability, is better suited for businesses who don’t sell large quantities of products, but rather deal with non-risk associated businesses. This is a good starting place for any business, with the option to move towards product liability or professional indemnity if necessary.