Whether you’re a manufacturer, distributor, or retailer, product liability insurance is like a shield for your business. It covers costs that can arise from claims related to defective or dangerous products. To give you a better idea of what these claims look like in the real world, here are some common examples of product liability cases that have targeted small businesses:
1. Manufacturing Defects
Manufacturing defects occur when something goes wrong during the production process, and the product becomes dangerous or faulty. This can happen even if the design is perfectly safe.
Example: Imagine you run a small bakery and sell homemade cookies. Unfortunately, during production, a piece of broken glass accidentally gets into a batch of cookies. If a customer bites into one and suffers an injury, they could file a product liability claim against your business. The average cost of a product injury claim is around $35,000. Without insurance, a case like this could be financially devastating for a small business like yours.
2. Design Defects
This type of defect isn’t due to a mistake in manufacturing but rather in the product’s design itself, which makes it inherently unsafe.
Example: Let’s say you design children’s toys, and one of your toys has small parts that could easily break off and become a choking hazard for toddlers. Even if you followed the correct manufacturing process, if the toy’s design is dangerous, a lawsuit could be headed your way. According to the U.S. Consumer Product Safety Commission (CPSC), toys were responsible for over 200,000 injuries in 2021 alone. A design defect in a children’s toy can lead to a costly recall or, worse, a lawsuit if a child gets injured.
3. Failure to Warn/Marketing Defects
Marketing defects refer to improper labeling, insufficient safety warnings, or lack of clear instructions for safe use of the product. Even if your product works well and is safe when used properly, if it doesn’t come with clear instructions or warnings about potential risks, you could face legal action.
Example: Imagine you own a small business selling all-natural cleaning products. You’ve created a great product, but you forget to include a warning about the dangers of mixing it with bleach, which could release harmful fumes. If a customer gets sick after accidentally mixing your cleaner with bleach, they could file a claim for failure to warn. Marketing defects like these are especially tricky because they can be overlooked during the product launch process, yet the consequences can be severe.
4. Contaminated Products
Food and beverage businesses often face product liability claims related to contamination, such as bacteria or allergens that weren’t properly disclosed.
Example: Let’s say you own a small snack company that makes granola bars. A batch accidentally gets contaminated with salmonella, and some of your customers end up hospitalized after eating them. Not only will you likely face a product recall, but also lawsuits from the affected customers. In 2021 alone, food product recalls due to contamination cost businesses over $10 million on average per incident.
5. Packaging Issues
Poor packaging or labeling can be a source of product liability claims, especially when it leads to product tampering or spoilage that harms consumers.
Example: You run a small business selling cosmetics, and due to a packaging error, some of your skin creams are compromised. A customer develops a rash from the spoiled product and sues you for medical costs and emotional damages. Packaging claims often lead to class-action lawsuits, which can drain your business of resources if you’re not prepared.
6. Third-Party Seller Liability
Small businesses that sell products made by other manufacturers are also at risk. Even if you didn’t make the product, you could be included in a lawsuit if the product was defective and caused harm.
Example: You own an online shop that sells fitness gear from various suppliers. One day, a customer injures themselves while using a defective resistance band you sourced from a manufacturer. The customer can name both you and the manufacturer in the lawsuit. Proper product liability insurance policy would cover your legal costs and settlement, even if the manufacturer was technically at fault.
7. Product Recalls
Product recalls happen when a product is found to be unsafe and needs to be pulled from the market. Recalls can lead to lawsuits, especially if the product caused injuries before the recall was issued.
Example: A small electronics store sells faulty phone chargers that overheat and start fires. After a series of incidents, the product gets recalled. However, one customer’s home was already damaged in a fire before the recall took place, and they sue your store for damages. Product liability claims related to recalls are common, and the associated costs—ranging from legal fees to compensating injured customers—can quickly spiral out of control.
The Big Picture
These examples highlight the many ways product liability claims can arise, even for small businesses. In fact, small businesses account for over 40% of all product liability claims filed each year in the U.S. Even if you do everything right, unexpected events or oversights can lead to costly lawsuits. And with the average product liability settlement sitting at around $400,000, it’s clear why having the right insurance in place is so important.
