Ecommerce Entrepreneurs Need Product Liability Insurance
It is become so easy to go into the ecommerce business that it is possible to be
lulled into believing that you do not need to attend to business risks in the same way that you might if you operate a bricks and mortar store. Do not be caught napping when it comes to minimizing product risk with product liability insurance.Product Liability Insurance Explained
Product liability insurance shields your business from claims related to the manufacture or sale of products,food, medicines or other goods to the public. This insurance covers the manufacturers or sellers liability for losses or injuries to a buyer, user or bystander caused by a defect or malfunction of the product, and, in some instances, a defective design or a failure to warn.
It is possible to face any of three types of product claims, depending on the products you sell.
Manufacturing or Production Flaws, A claim that some part of the production process created an unreasonably unsafe defect in the resulting product. This kind of claim could be made against you for toys with parts that have been improperly assembled and can pose a choking hazard if they become loose and are swallowed. Or, if a manufacturer substitutes a lower cost ingredient in a skin product that results in skin irritations, A manufacturing flaw claim can be brought.
Design Defect
A claim that the design of the product is inherently unsafe. This can be a factor in products that are simply not well designed such as a baby stroller without enough structural support or an electrical device with poorly designed wiring or insulation.
Defective Warnings or Instructions
A claim that the product was not properly labeled or had insufficient warnings for the consumer to understand the risk. This could occur if a solvent does not have sufficient warning to use only with gloves or in a well ventilated area. This issue may also come up with warnings and directions that are written by people who are not native speakers.How many times have you seen directions on imported products that were clearly written by someone who simply does not have a sufficient understanding of English?
If a suit is successful,those held responsible can be liable for medical costs, compensatory damages, economic damages, and in some instances, attorneys fees, costs and punitive damages.
The issue of product liability transcends country lines and while there may be some variation from country to another, almost every country recognizes the right to sue for loss from a defective product.
While product liability claims are a rare occurrence in the ecommerce world, it is still a possibility that should be handled correctly.
I only sell, I do not manufacture
Too many ecommerce business owners believe that because they only sell the products, they do not share responsibility.They erroneously believe that product liability issues revert to the original manufacturer. This flawed reasoning is one of the primary reasons that resellers get in trouble.
Most countries provinces or states follow the stream of commerce model of liability. If your company participated in placing the product into the stream of commerce, it can be held liable for damages to the end user. The usual course of action is for the claimant to sue everyone in the supply chain, from the final seller, back through the wholesale distributor to the original manufacturer. While the deep pockets may exist with the manufacturer, many others on the distribution chain can be ruined in the process.
Obtaining Product Liability Insurance
If you have general liability insurance, you may already have some level of product liability included within that policy.When it is part of a commercial general liability policy, the coverage is sometimes called products completed operations insurance.If you do have products completed operations coverage, check with your broker to understand exactly what is covered.Optimally, your insurance should cover economic, statutory and punitive damages.
If you do not currently have appropriate coverage, you should obtain it as soon as possible.
Special Considerations
You will need a policy that protects you against:
Safety claims
Manufacturing defects
Spoilage costs
Legal defense costs
Medical costs
If you sell internationally, be sure that your policy will cover you for sales in other countries.
Be sure that your products are classified correctly. Different products have different levels of risk and corresponding differences in cost. For example, step stools are much less risky than ladders but could easily be classified in the same category.
Check for ways to minimize premium.Sometimes premiums are lower if you have a quality control program in place that includes inspection of goods before shipment to minimize loss potential.
Most insurance premiums are based on your volume of sales.Do not try to minimize premiums by under reporting sales. There are often penalties for under reporting.
For most ecommerce business owners, product liability issues are rare occurrences which means that product liability insurance is very affordable and well worth the investment.
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