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Product Insurance, or Product Liability Insurance, is one of the key coverage options required by a business that revolves around any and/or all of the different phases of handling a product. These phases include manufacturing, packaging, distributing, wholesaling and/or retailing a product.
Product Insurance is coverage for the liability of the insured business from risks of a claim or lawsuit arising out of an injury or property damage suffered by a third party caused by a defect or malfunction of the product. Sometimes, depending on the exact contract details, this coverage is extended to cover the insured company from a particularly defective design or a certain failure to warn the users of a plausible failure on the product’s part.
As stated earlier, this liability covers not only the direct manufacturer of the product, but also the distributors and retailers as well. Below is a comprehensive list of different business scenarios that may be at risk and eligible for coverage:
The actual manufacturer of a product
Example: A chemical industry based company (say, Company ABC) that manufactures cosmetics, toiletries, etc.
The business commissioning the product manufacturer as a part of its own brand customization and/or the name of the business that appears on the product
Example: A supplier agency (say, Agency CDF) to a boutique hotel (say, Hotel XYZ) that orders specific set of toiletries with the hotel’s brand name present on it to Company ABC (as mentioned above).
The business that uses material and/or components from a specific supplier/producer is no longer in business or is legally unidentified
Example: If Agency CDF was to withdraw from the market (for whatever reasons) and Hotel XYZ still used the toiletries supplied by the agency previously.
The business having a ‘hold harmless’ agreement present with any supplier who indemnified their own liability.
Now, in all the above scenarios, if a guest at the Hotel XYZ faces any injury (such as a dermatological reaction caused by the use of toiletries while staying at the hotel), that guest may sue the hotel for the same. This eventually may cascade to the supplier agency and/or the manufacturer. So, in order to avoid these hassles, each of the parties (i.e. Hotel XYZ, Agency CDF and Company ABC) should have Product Liability Insurance in place.
In the 4th scenario, (if applied to the same example above), if either of Hotel XYZ or Agency CDF has a Hold Harmless agreement included in their contract with the manufacturer Company ABC, then they can be relieved of the charges from the injured guest’s claims/lawsuits. A Hold Harmless agreement enables protection of one or both parties from specific legal claims while entering a certain contract regarding a service and/or product, as per the provision of the agreement. However, at this point, the manufacturer will most likely face the greater loss of compensating the guest for all their charges, if proven true. Having a Product Liability Insurance coverage protects Company ABC within the limits of the coverage from the potentially severe financial loss and/or market reputation.
It is important for a business, however big or small, to have a valid Product Liability Insurance in place when their business caters to the use of a product directly. On one hand, it ensures that the business does not lose money from unforeseen claims and/or law suits concerning the product, saving the company from monetary damage. By helping the business clearly define and limit its responsibilities on the product, it helps the company’s market reputation and customer reliability in the long run. Both are very valuable aspects for a business to run smoothly and prosper. Most of the time this coverage comes as a part of the business insurance package anyway, be it a generic package or a tailored one based on the business’s nature and requirements.
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