In 1992, 79-year old Stella Liebeck filed a lawsuit against McDonald’s for serving coffee that was too hot. In a product liability case that became known as the “McDonald’s Coffee Case,” the Albuquerque woman sued for injuries she had received after spilling coffee on herself. The basis of the lawsuit centered on insufficient warnings on the cups. After a trial and appeals, the parties settled out of court for an amount of less than $600,000.
This serves as a powerful reminder that having the right commercial insurance in the form of product liability insurance can help cover unpredictable claims.
The damages awarded in this claim, and others like it, include medical costs, compensatory damages, economic damages, and, in some instances, attorneys' fees, costs and punitive damages. While a large company like McDonald’s was in no danger of being financially damaged by the lawsuit, product liability claims can and do put smaller companies out of business.
Product liability is not difficult to understand. Simply put, your small business is responsible for the safety of the goods it provides. And that can be true even if you’re not the manufacturer. No matter where you are in the supply chain, you can be at least partially responsible for consumer safety.
If you are responsible for any of the following, you could be held liable:
Be aware of the claims your company could face
There are three types of products "claims" a company may encounter:
- Manufacturing or Production Flaws: Some part of the production process created an unsafe defect in the product. Included here are dangerous chemicals found in goods imported from China.
- Design Defect: The design of the product is inherently unsafe. Remember the Pinto owners’ lawsuits against Ford in the 1970's?
- Defective Warnings or Instructions: The product was not properly labeled or had insufficient warnings for the consumer to understand the risk. The McDonald's coffee case is an example.
Your company’s survival depends on getting your products into the hands of consumers. But you must manage your product liability risk while you’re doing that. What’s the answer?
Product liability insurance protects your business
If your company offers any products to the consuming public, then you need product liability coverage. In many cases, some form of this coverage will be present in the standard commercial general liability or business owners' policy. You will need to confirm this with your insurance professional. Having a clear understanding of your business insurance coverage is essential.
Here are some things to know about your coverage options:
- General Liability Insurance can help pay your defense costs if a customer sues you because of bodily harm or property damage that your product causes.
- Product Liability Insurance covers the manufacturer's or seller's 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. You can add this coverage as part of a commercial general liability policy.
- Recall Insurance helps cover the costs of a recall. Some business owners add it as a rider to their general liability or product liability insurance. It can contribute to paying for client notifications, product disposals, and other costs associated with a recall.
Take steps to mitigate your risk
In addition to being adequately insured, here are some ways to minimize your risks:
- Inspect any retail stock for defects
- Make sure warning labels are easy to read
- Clean and inspect your equipment often
- Review product instructions for accuracy
- Have a system in place to track products from the factory to the store
Get the Right Product Liability Insurance
Product lawsuits and recalls can drain your company’s bank account. Talk to us about protecting your business with a Product Liability Insurance policy that will help you manage your risks. We're independent insurance agents who are free to shop among many competing insurance providers to get you the absolute best deal on quality insurance coverage.
Contact American Insuring Group online today, or call us at (800) 947-1270 or (610) 775-3848.