If you’re the owner of a manufacturing company, you are what you produce. What that means is that in every phase of your business’s operation, the quality of your products should be your top priority and main concern. Your products are what define your company, and your company’s reputation depends on the quality of your products.
But, like any business, there are no guarantees that you are always going to be able to deliver exactly what you’ve promised.
Just as a lawyer can forget to submit an important document and get hit with a legal malpractice claim as a result, your products might not always leave your manufacturing plant in perfect condition or working as they should.
And if a product your company has produced has a defect or malfunctions in a way that leads to third-party bodily injury or property damage, you can expect to be held liable.
Protecting Your Manufacturing Business with Insurance
There are certain risks associated with running a manufacturing business that are best passed off to a third party via insurance. The most basic insurance policies that just about every manufacturing business needs are commercial property and general liability insurance.
Commercial property insurance will protect your business against property and equipment damage. It also covers other business contents, such as inventory. If your property is damaged by inclement weather or vandalized, for example, commercial property insurance kicks in to cover the costs of repairing or replacing the damaged property. If your equipment and inventory are damaged or stolen, property insurance covers those types of situations as well.
General liability will cover third-party injuries and property damage that occur at your facilities. For example, if a client visits your manufacturing plant and is injured in a slip-and-fall accident, general liability would cover defense costs and possible settlements if the client decides to file a claim against you.
Smaller businesses commonly combine these two types of coverage into one convenient and less expensive package by purchasing what is called a Business Owner’s Policy (BOP). A BOP also includes business interruption insurance. This policy will help your business weather the storm financially if you need to shut down your operation for a period of time, for whatever reason. The policy can cover losses, such as rent payments and employee wages, for up to a year while you’re getting your business back on its feet.
Manufacturers should also be purchasing workers’ compensation insurance, which is mandated coverage in just about every U.S. state and will cover expenses related to any employee injury claim that results from a staff member injuring themselves at your facility.
Does General Liability Policy Cover Product-Related Damages?
Since a general liability policy typically covers third-party injuries and property damage, many assume that product-related claims are covered as well. But that’s almost never the case with a typical, basic general liability policy.
If your business centers around the production, sale, or distribution of products, then you’re going to have to buy a separate product liability policy to fully cover those types of risks.
Combining a general liability policy with a dedicated product liability policy is the best way to make sure that your manufacturing business is completely covered and that there are no gaps in your coverage that could lead to potentially devastating financial losses that your company would have to cover without the help of an insurer.
What Does Product Liability Insurance Cover Exactly?
To recapitulate, general liability insurance will cover claims that are related to your premises and operations, while product liability will cover claims that are directly related to people using the product that you have produced.
These are the most common types of claims that a product liability policy will cover:
- Defective Design: Injured parties can allege that the product was not designed well, which rendered the product unsafe to use and resulted in some type of injury or damage to the person using it.
- Flaws in Production: Injured parties can allege that the hazardous defect in the product was the result of poor manufacturing, meaning that some phase of the production process was flawed, which led to the product defect that caused the injury or property damage.
- Bad Instructions or Unsatisfactory Warnings: Injured parties can allege that the producer or seller failed to provide proper instructions for the use of the product or failed to warn customers of potential risks associated with the product, which then resulted in an injury or property damage.
Plaintiffs in product liability suits most commonly request to be reimbursed for things such as medical expenses, loss of income, and pain and suffering resulting from the product defect.
Coupling the financial burden of having to pay these types of compensatory damages with the typically significant legal costs that businesses will incur as a result of these types of claims makes it easy to understand why product liability insurance should be considered essential coverage for all manufacturing businesses.