Product Liability Insurance – Retailers, Wholesalers, Distributors and Manufacturers

product liability manufacturer retail wholesaleA very real concern in the realm of product liability insurance is the distinction between wholesalers, distributors and manufactures. The distinction in question is “Who takes responsibility for product liability claims in the event of damage or bodily injury?” Is it the retailer, the wholesaler, the distributor or the manufacturer?

Who is considered the product manufacturer?

In operational lingo, outside of the microcosm of product liability insurance, an entity that produces a product is considered the manufacturer, however, in the world of insurance the definition is quite different. The reason for the disparity is primarily dictated by the US Court systems and here is why. Typically, in the event of a product liability insurance suit, the courts will rarely, if ever, export a claimant overseas to obtain satisfaction when injuries are involved, either bodily injury or property damage, and will contrarily opt to settle the claim here on domestic soil. This being the case, the first link in the domestic chain of the product’s life often becomes liable for damages and judgements that arise from the use of the product. What this means plays a tremendous part in how your insurance policy is written, because whether you are directly importing a product directly from overseas, having a product manufactured for you overseas (especially if that product bears your company name) or marketing a product that is to be delivered directly to an end-user or retailer, that originates from overseas, then this makes you the first link in the domestic chain, so whether you consider yourself a distributor, retailer, or wholesaler, or an importer, for purposes of product liability insurance, YOU ARE A MANUFACTURER.


product liability insurance coverage

This can be a dangerous situation if your insurance policy defines your operation as a retailer, distributor, or wholesaler and you are either importing a product directly from overseas, having a product manufactured overseas, or having an overseas product manufactured for you that bears your brand. Even more disconcerting is the following scenario: You have a product manufactured for you by a domestic entity, one that does not have product liability insurance, or has product liability insurance and you fail to require them to name you as an additional insured on their product liability insurance policy. Consider this scenario, a lawsuit ensues that finds the manufacturer liable for any of the following reasons:

  • Perhaps their product varied from your design
  • There was a manufacturing defect
  • They used less expensive, inferior material
  • The production line was corrupt and metal filings resulted in your dietary supplement
  • The warning label on your toddler product failed to print or was incomplete

In any of these instances you might find yourself and your company facing a huge problem because of the following reasons because although you are not necessarily liable, because you are either selling the product, or because the product bears your name on it, you are responsible, and product liability insurance policies are not product responsibility policies :

  1. If you pitched yourself to your insurance agent as a wholesaler, retailer or distributor, You may have no manufacturing classification considered on your insurance policy and your claim may very well be denied because you have no product liability insurance coverage
  2. Because the cause of the claim was not your fault, your insurance carrier may deny the claim and suggest that you attempt to seek indemnification from the manufacturer, if they are domestic.
  3. You might be liable for damages because you never had a written and executed contract in place with the domestic manufacturer to require them to name you as an additional insured on their product liability policy.
  4. You might be liable for damages simply because the domestic manufacturer has no product liability insurance, and you are the one being sued, not them, because your name is all over the product.
  5. The courts find you liable for the claim because you either designed the product and had it manufactured for you overseas, you imported the product directly from overseas, you had an overseas manufacturer brand the product with you logo.

product liability insurance policyWhat retailers, wholesalers and distributors need to understand is that if they are bringing a product in from overseas, then they need to have a manufacturing classification on their insurance policy to pick up the product liability insurance exposure, as they will be deemed the manufacturer from their liability insurance carrier.
Similarly, if you have designed or formulated a product and are having it manufactured by a domestic third party, you also need a manufacturing classification on your product liability policy for the following reasons. 1) In the event of a suit, you will be held responsible for the claim if it is the result of the design or the formulation. 2) In the event that the manufacturer has gone defunct or has no coverage you will need a policy to defend you. The reason you need to be named as an additional insured on the domestic manufacturer’s product liability policy is as follows. If the cause of the claim was not the design or the formulation, and it was a manufacturing defect or use of inferior components then technically and perhaps legally you may not be liable for the suit, however because your name is on the product, you may be responsible for bringing it to market. In this case you will need to rely on your additional insured status to have the manufacturer’s product liability policy to defend you for their neglect in the creation of the product. The case being that, you are covered for liability and not responsibility.
A recent development in the world of insurance that is particular importance is one of defense chargebacks. Some states have found it permissible for insurance companies to charge the client back for defense costs that have been deemed to not be the responsibility of the insurance companies that began defending suits that are not covered losses. In such cases, when the insurance company is presented with a law suit and begins legal responses and defending suits, if they have reason to believe that the suit they are defending might not be a covered loss, they will reserve rights. So in the likelihood that the claim is not one the policy provides coverage for, the carrier may prove to the courts that as per the insuring agreement they are not required to defend the suit, they could very well slap the policyholder with a bill for the defense costs that were incurred, and still leave the client to face the remainder of the lawsuit, without coverage for the legal costs or judgement or settlement penalties if they are to subsequently awarded to the claimant.  

What types of products need products liability insurance?

Essentially any product that is put into market or sold in any venue should have products liability insurance.  Some examples are food, clothing, tools, energy products, furniture, stationary goods, beverages, baked products, luggage, pet items, heating & cooling apparatus, electronic goods, vehicles, toys (especially).

Click here for a List Of Business Classes we Offer Products Liability For.

Also Available : International Product Recall Insurance

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Because every product is different, underwriting a products liability insurance policy is complicated. As many people have already found out, Castle Rock Insurance Agency is the best stop for a quote on their Products Liability Insurance.  We are the low cost solution for your Products Liability Insurance Policy. Castle Rock Agency currently offers Products Liability Insurance Policy Coverage in New York, NY, New Jersey, NJ, Connecticut, CT, Pennsylvania, PA, Massachusetts, MA, Texas, TX, Florida, FL, California, CA, Virginia, VA, West Virginia, WV.

Product Liability Insurance – Retailers, Wholesalers, Distributors and Manufacturers

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