How a Product Liability Claim Affects Your Business

Your products are the lifeblood of your business. That’s why it’s so important to make safety a priority when designing and manufacturing your products. Still, things that can happen that can result in customers filing a product liability claim, and that claim can affect your business in a number of ways.

Your Brand’s Reputation is on the Line

When a product liability claim is brought against a company, it means that the product is alleged to have:

  • A design or manufacturing defect
  • The consumer was not warned of the possible risks of the product
  • The defective product caused the plaintiff’s injuries
  • The plaintiff was using the product as intended

None of these things are good for any brand. If the lawsuit becomes public knowledge (and it might), it will almost certainly tarnish your company’s reputation and cause your customer base to lose their confidence in your brand.

Trust is the key most important thing for any brand to have with their customers. Once your customers stop trusting you, you start losing business. You may have work hard to rebuild that trust and confidence, but it’s not an impossible feat – especially if you take steps to make things right and improve your manufacturing process.

Your Insurance May Not Cover All Costs

Every business should have general liability insurance, and many of these policies have product liability coverage. This coverage will pay for legal expenses if you’re sued for defective products.

Not all policies offer this coverage, so it’s important to talk to your agent to see what your policy provides.

If your insurance does provide this coverage, it should cover the cost of:

  • Medical damages owed to injured parties.
  • Hiring lawyers to defend your business.
  • Financial damages awarded to the plaintiff if you should go to trial and lose.
  • A settlement, if the claim is settled out of court.

It’s important to note that there are some things product liability insurance doesn’t cover, including:

  • Lost inventory
  • Slip-and-fall injuries
  • Damage to your products
  • Employee injuries
  • Product recall costs
  • Professional liabilities

If you’re forced to recall a product, you will need to have product recall insurance to cover these costs. Otherwise, you’ll be paying for the recall out of your own pocket.

A Lawsuit Could Put a Financial Strain on Your Business

A product liability lawsuit could put a financial strain on your business. A study from The Hartford insurance company found that the average product liability claim costs a business $35,000.

Again, product liability insurance can cover these claims, but you need to make sure that you have this coverage before someone files a claim.

The Negative Effects are Typically Short-Term

For most businesses, the negative effects of a product liability claim are usually short-term. Your brand’s reputation may be harmed at first, but in the long-run, the business should recover.

Some of the top companies in the world have been affected by product liability lawsuits and have recovered. There may be brief financial consequences, but eventually, your company will recover if you take steps to rebuild trust and make things right.