Product Liability… Who is Responsible?
By: Mary Thompson, Capstone Brokerage President, November 20, 2015
It is estimated that the average American will spend at least $700 on gifts this holiday season. For the commercial industry that is good news. From importers, manufactures, distributors, wholesalers to retail stores, products have a long road to travel before they end up in American homes for the holidays. Product liability insurance plays a huge role in all entities that create products because defects can rest with any party in the products chain of distribution. The typical product can have up to five responsible parties, not limited to:
• Product manufacturers
• Component part manufacturers
• Assembly and/or installation companies
• Wholesalers
• Retail stores that sell the product directly to the consumer
Take a simple baby doll for example: the parts can come from several sources and several countries. They are then sent to a manufacturing company such as Fisher Price, who assembles the doll. The doll, along with its “brothers and sisters,” will then be packaged and sold to a wholesaler. From there, a retail store or chain places an order and the dolls are distributed to stores across America for consumer purchase.
The question arises, if a product is dangerous or causes injury, who is at fault? The Product Liability law is the legal set of guidelines for who will be held responsible for the defective product. The definition of Product Liability is the responsibility of the manufacturer or vendor of goods to compensate injury caused by defective merchandise for sale. In essence, any of the above listed parties can be responsible. So how do I protect myself if I am a manufacturer, wholesalers, distributer, or retail store?
Taking out a product liability policy is absolutely necessary for all components of the retail market. Here is why…
Using the doll example, say the doll’s eye comes out and a child chokes on it. The manufacturer, the manufacturer of the eye itself (if made elsewhere), the company that assembled the doll, the wholesaler who sent the doll to the retail store and the retail store that sold the doll to the injured consumer could be charged for damages incurred.
We have all heard of toy recalls due to injury and every case seems to be handled differently. But one thing is for sure: insurance is an integral of part of the process and protection of all parties. Product Liability Insurance Coverage will cover the policy holder in the event that a suit arises out of the use of the insured’s products. This can be loss to personal property, business property, injury or death. Items can range from clothing to toys, tools to building materials, and electronic devices.
Product Liability will cover bodily injury and property damage. It is designed to protect the business if they are found negligent. It includes coverage for damages, legal defense, and settlement charges. Product liability will protect any business or individual that manufactures his/her own product. Product Liability will even provide coverage if the product’s manufacturing is subcontracted out by another operation (this applies to operations overseas). Next month I will provide more insight on Product Liability Law, the three types of product liability claims, and product liability cost.
