Product liability insurance covers claims arising from products that cause bodily injury or property damage. Coverage applies to manufacturers, distributors, wholesalers, and retailers who may be held strictly liable for defective products under three theories: design defect, manufacturing defect, and failure to warn/inadequate instructions. Product liability is typically included within a commercial general liability policy but may require a separate policy for high-risk products.
Any business in the product supply chain — manufacturers, distributors, importers, wholesalers, and retailers. Companies importing products from overseas carry particular exposure as they may be the only domestic entity in the supply chain. Food and beverage producers, pharmaceutical companies, consumer electronics manufacturers, and children's product makers face the highest product liability exposure.
Product liability claims are typically covered under the products-completed operations hazard of a CGL policy, which has its own aggregate limit. Coverage is occurrence-based — the policy in force when the injury occurs responds, even if the product was manufactured or sold years earlier. Product recall coverage is not included in standard product liability policies and must be purchased separately. Defense costs are outside policy limits under standard CGL forms.
Product liability limits under CGL policies are typically $1M per occurrence and $2M products-completed operations aggregate. Higher limits are obtained through umbrella and excess policies. Stand-alone product liability policies for high-risk products may carry limits of $5M-$25M. Deductibles range from $0 to $25K. Premium is based on product type, sales volume, distribution channels, and claims history.
A consumer electronics manufacturer faced a class action lawsuit after a battery defect in their portable charging device caused several house fires. The product liability coverage under the CGL policy paid $1M (policy limit), and the umbrella policy contributed an additional $4M for the $5M class action settlement. Product recall costs of $2.3M were covered under a separate recall policy.