Insurance Matters: Should you purchase product liability and product recall insurance? | Business

This week’s column is for businesses that manufacture or distribute physical products.

If you’re a business owner, heads up and pay special attention.

The rest of my readers: you may still find this interesting. It may be like, “who knew?” for some of you.

We’ll talk about three things: what can go wrong, what is product liability coverage and what is product recall coverage.

In your business, hundreds of things can go wrong with a product that you manufacture, sell or distribute.

Let’s say you’re a small manufacturer. Your company makes a gadget. Your gadget is composed of several parts that you source from other trusted manufacturers. You are confident that your gadget is safe to use. You’ve taken every precaution to make sure your own children can use this product safely.

But one day, you read a headline in the paper that says a small piece of your gadget broke off and caused an accident that harmed a child.

The fault was in a previously unknown point of failure in one of the parts you obtain from a trusted factory. They didn’t know about this potential hazard, but the plaintiffs who are suing them allege that they should have known. And the feds and state are stepping in. A product recall is just hours away.

You are next on the list. You used the part in your gadget so you are legally responsible too.

This is a business-killing nightmare that happens every year in California and in the United States.

2. What is product liability coverage?

Product liability insurance provides legal defense for your business, and pays damages when sued, if you are any part of the distribution chain of a faulty product.

In short, if you made it, assembled it, or sold it, you are at risk. This coverage helps protect that risk.

The product must have hurt someone, made someone sick, caused a fatality, or caused property damage before coverage kicks in.

Restaurants need this type of coverage too. Remember… food is a product.

Many small businesses should consider product liability insurance. It’s not just the headline-grabbing big cases that you need to consider. It’s also the “defending yourself from baseless claims” situations.

Plaintiffs often sue, hoping for smaller “settle out of court” windfalls. And lawyers aren’t cheap.

According to a 2015 study by The Hartford, the average product liability insurance claim was $35,000. And the study showed product liability claims to be one of the top 10 in frequency. People sue.

3. What is product recall insurance?

What happens when a product you made or sold is recalled before you are sued?

Let’s say you are prepared for the lawsuit with your product liability policy… that’s great. But you can incur huge costs and lost income when your product is recalled… often before there’s been a lawsuit.

Product recall insurance is designed to help cover costs associated with your product being recalled, including financial loss due to bad PR, and the actual costs of taking the product off the shelf.

Product recall insurance is a unique and special coverage … and one you should consider.

If you are associated in any way with making or distributing a physical product (and this means restaurant owners too), please contact an experienced local agent to discuss your unique risks.

Bruce Sackrison is an insurance property and casualty broker affiliated with Professional Insurance Associates. He is at 707-931-0186 or

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