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Product Liability Insurance: Who Needs It, Anyway?
Consumers around the world are litigious, and costs and damages from lawsuits climb ever higher. Whether selling goods or services, every business from the international conglomerate to the sole proprietor needs product liability insurance to protect not only the business and its assets but also personal assets from exorbitant losses arising from a faulty product or service.
Sample Case Studies
Bloomberg News reported in early 2010 a 52% increase in 2009 of damage award amounts worldwide from faulty product lawsuits from figures from 2008.
The most common product liability lawsuits concentrate on the automobile industry. Each manufacturer monitors and evaluates lawsuit award patterns against probable accident or parts production lawsuits. When the cost of settling lawsuits for faulty parts or design exceeds projected costs, vehicle parts recalls are published, and failure of a consumer to abide by the free repair drastically reduces possible award amounts. But not all large product liability lawsuits are vehicle-related.
The medical products industry is next on the list. Sample products that have led to enormous lawsuit payouts include denture cream, Guidant Stents, Pacemakers, and Defibrillators, and hernia patches, to name only a few. Physicians, hospitals, laboratories, nursing homes, hospices, and ambulance services are all subject to service-related liability lawsuits.
Pfizer Pharmaceutical Company lost a combined $103 million from two lawsuits over one hormone replacement drug. There are over 9,000 additional lawsuits still pending.
Altria, the Virginia tobacco company that owns Phillip Morris, lost a suit to a former smoker who developed cancer. The ex-smoker was awarded a total of $300 million, including $203 million in punitive damages.
Product Liability Criteria
In order for any court jurisdiction to determine product liability, a claim must first be based on any of three main defects:
- Design Defects:: Was the product design faulty prior to manufacture?
- Manufacturing Defects: Was the manufacturing process or sequence faulty? Did materials used not meet minimum standards?
- Marketing Defects: Were instructions and warnings not present, incomplete, or incomprehensible to the average user?
Based on these three defect areas, product liability claims center around negligence, liability, or breach of contract or warranty.
Expect the Unexpected
While every company hopes no consumer will sue for any reason, only the smart business prepares for the worst and purchase product liability insurance. Even one relatively small liability award amount and punitive damages can bankrupt the unprepared.
Be smart. Get product liability insurance before a guilty verdict destroys the company. It's just good business.