Automotive Specialty Insurance

Product Liability


As a manufacturer, wholesaler or retailer of automotive parts, your business comes with plenty of responsibility and accountability. Even while operating with the utmost care and providing the best quality auto parts and services available, a third party can sue your company for damages due to Bodily Injury or Property Damage allegedly created by your product.

Do you need Product Liability Insurance?

Over 78% of all U.S. businesses are structured as a partnership or sole proprietorship, according to For the majority of small business owners, this form of ownership puts your business and personal liabilities at risk. Obtaining business liability insurance which includes Product Liability coverage protects both your business and personal life from financial ruin.

A common misconception of a limited liability company (LLC) or an Incorporated company is a business owner is protected from personal liability and liability insurance is not necessary. Regardless of your corporate structure, companies and corporate executives can be held liable:

•Personally you have injured someone

•You have acted in an irresponsible or illegal manner

•You do not operate your business as a separate entity

What is Business Liability Insurance and Product Liability Insurance?

Business liability insurance protects your business in the event of a lawsuit for bodily injury, property damage, personal injury or advertising injury. It will cover the damages from a lawsuit along with the legal costs incurred to defend your company. Within a General Liability policy, Products Liability can be included to provide the much needed coverage to protect your business assets should the product(s) you manufacturer, distribute, sell or install injure a third party or create property damage. To understand the need for this coverage it is critical to understand the potential liability. There are generally three types of products "claims" a company may face:

Manufacturing or Production Flaws- A claim that some part of the production process created an unreasonably unsafe defect in the resulting product. Claims against manufacturers often alledge a manufacturing defect.

Design Defect- A claim that the design of the product is inherently unsafe due to the design and the alledged failure of the company to properly design and test an automotive product.

Defective Warnings or Instructions- The claim that the product was not properly labeled or had insufficient warnings for the consumer to understand the risk of the product when put to it's intended use.

The damages awarded in these claims include medical costs, compensatory damages, economic damages, and, in some instances, attorneys' fees, costs and punitive damages. Product liability claims can and do put businesses out of business.

Often, retailers and wholesalers will fail to secure this coverage. The logic is that since they did not "manufacture" anything, the coverage is not necessary. However, 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. This means that if your company participated in placing the product into the "stream of commerce," it can be held liable for damages to the end user.

If your company provides any products to the consuming public, then your company needs product liability or completed-operations coverage. In most cases, some form of this coverage will be present in the standard commercial general liability or business owners' policy. Confirm this with your insurance professional or have an SEIA team member professionally review your policy. Having a clear understanding of what is covered (for example, some policies will cover economic damages, but not punitive or statutory damages), is very important so you know exactly where you stand when you need the coverage the most…during a lawsuit!

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