Costly litigation can sink a small business.

For manufacturers or sellers of merchandise, product liability insurance is an essential safeguard to prevent financial ruin. Product liability coverage protects against claims that a product manufactured or sold caused bodily injury or property damage.

Monthly insurance premiums amount to a fraction of what some businesses pay under the weight of a legal loss. In the event of a claim, product liability insurance covers the customer’s medical costs to treat an injury, legal fees and the price tag of defense as well as settlements or judgements against a business.

Bases for claims

Product liability claims can be based on negligence; breach of warranty of fitness, when a consumer relies on a company to fulfill a specific request in a product and the company fails; or strict liability, in which intent doesn’t matter — if it’s proven defective, a producer or distributor is liable.

Defects that create liability for manufacturers or suppliers:

• design defects
• manufacturing defects (during production or construction of the product)
• defects in marketing (failure to warn consumers of potential product dangers)

Historic case

On the macro level, recall the 2002 case of Bullock v. Phillip Morris, in which 64-year-old Betty Bullock of Newport Beach, California, sued the tobacco behemoth for negligence, strict product liability and fraud — and made history.

At the time of the jury trial, Bullock had inoperable lung cancer, the result of puffing Phillip Morris products since she was 17. Bullock asserted cigarettes caused her sickness and the tobacco company failed to warn her of health risks related to smoking.

A jury awarded Bullock $850,000 in compensatory damages and $28 billion in punitive damages, the largest award to a single plaintiff in history. Naturally, the decision was appealed by the company and the award was reduced to $28 million, a tenth of one percent of the initial figure. The appeal proceedings dragged on after Bullock died in 2003; her daughter was eventually paid $13.8 million in the suit.

Though a high-profile case, base ingredients of Bullock vs. Phillip Morris can be found throughout the business world. Consider product liability insurance when shielding your company from potential litigation.

Speak with a Leliaert Insurance Agency staff member today to help you determine the best fit for your coverage needs.