Product Liability Insurance Law and Legal Definition

Product liability insurance protects the business from claims related to the manufacture or sale of products, food, medicines or other goods to the public. It 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. The coverage is sometimes called products-completed operations insurance when it is part of a commercial general liability policy.

There are generally three types of products "claims" a company may face:

1. Manufacturing or Production Flaws- A claim that some part of the production process created an unreasonably unsafe defect in the resulting product.

2. Design Defect- A claim that the design of the product is inherently unsafe.

3. Defective Warnings or Instructions- The claim that the product was not properly labeled or had insufficient warnings for the consumer to understand the risk.

The damages awarded in these claims include medical costs, compensatory damages, economic damages, and, in some instances, attorneys' fees, costs and punitive damages.

Manufacturers are not the only ones subject to product liability exposure. Retailers and wholesalers are often brought into a lawsuit for alleged negligence by the consumer. Most states follow the "stream of commerce" model of liability, which means that if a company participated in placing the product into the "stream of commerce," it can be held liable for damages to the end user.