What Is Product Liability Insurance?

Business owners are legally responsible for the products they manufacture, distribute, or sell. Product liability insurance for small businesses protects them against legal and financial risks arising from claims that a product caused injury, illness, or property damage. 

Product liability insurance is a third-party coverage that protects business owners against customer claims alleging third-party property damages or bodily injuries caused by their products.

It covers businesses for damages related to a product’s design, manufacturing, or defects and allegations of incorrect labelling and safety warnings.

What Is Product Liability?

Product liability is the legal responsibility of a manufacturer, distributor, or seller for third-party bodily injuries or property damage caused by a defective or unsafe product to customers. Third parties can seek compensation through lawsuits or claims against the business owner.

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It is essential coverage for manufacturers, distributors, wholesalers, retailers, and e-commerce sellers.

If a company’s customer suffers a bodily injury after using a product sold to them – for example, a customer has an allergic reaction to a skincare product – product liability insurance may cover the injured person’s medical and rehabilitation expenses. 

If that person sues the company, product liability insurance may cover the business’s legal defence fees and settlements or judgements against them.

Does Product Liability Insurance Cover Damages to Business Inventory?

No. Product liability insurance only covers third-party bodily injuries or property damages to customers harmed by a product you made, distributed, or sold.

Commercial property insurance or business contents insurance covers damage caused to a business’s inventory and physical assets by fire, water, natural disasters, theft, or vandalism.

What Types of Businesses Need Product Liability Insurance?

Any small business that creates, distributes, or sells any product (including food) needs product liability insurance protection, including:

• Manufacturers (food, electronics, health and wellness products, toys, machinery)
• Wholesalers and distributors
• Retailers and e-commerce businesses
• Online sellers (Amazon, Etsy, or Shopify independent sellers)
• Restaurants, cafes, bakeries, packaged food producers
• Automotive parts suppliers and manufacturers

Does Product Liability Insurance Cover Product Recalls?

It depends on the product liability insurance policy.

Product recalls are first-party losses – expenses that affect a business owner or retailer. Product recall insurance can be added to a product liability insurance policy as an endorsement.

Product liability insurance is often included in a general liability insurance policy, can be added to a business owner’s coverage, or can be purchased as standalone protection.

How to Get Customized, Low-Cost Product Liability Insurance

More than 350,000 Canadian small business owners and independent professionals trust Zensurance to help them get customized, low-cost business insurance, including product liability insurance.

Fill out our online application for a free quote in less than five minutes.

Our brokers are insurance experts who will shop our partner network of over 50 insurers to get the right coverage your business needs, tailor it to suit your specific requirements and budget, and answer any questions.

Let us take the hassle out of getting insured so you can focus on selling and growing your bottom line.