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What is Product Liability Insurance?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 October 2016
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Product liability insurance is protective coverage that prevents manufacturers and sellers from prosecution due to damages caused by the use of a given product. In the event that the manufacturer, distributor, or merchant that sold the product is sued, the insurance handles the payment of any amount awarded by the courts, thus averting financial loss to the defendant. Products liability insurance is considered a necessity for just about any type of business engaged in the task of manufacturing.

There are provisions and limitations that apply to just about any kind of product liability insurance. Policies for small businesses will include coverage that is similar to that extended to large corporations, although the amount of coverage that the smaller business can receive is usually much less. There is also some variance based on industry type and the amount of risk involved with the products made available to consumers. For example, food product liability insurance is likely to be more comprehensive than that for companies that produce bedding or fabric.

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The current insurance laws and regulations in the country where the business is headquartered also help to define the scope of this type of insurance insurance. A product liability insurance broker can advise the business as to what types of coverage and the associated amounts are currently available within the guidelines established by government agencies. In some countries, the standards and regulations that apply to this sort of insurance are very broad; other nations have very specific regulations in terms of qualifying for this type of coverage, as well as the amount that can be charged by the provider for the coverage.

A qualified broker will not simply write a policy at the behest of a company. Instead, he or she will evaluate the nature and volume of the business, including the types of products that are sold through various outlets. Once the business and its products are evaluated and classified according to the standards of the insurance provider, a quotation on the coverage, including the premium and the payment terms, is extended to the business. As long as the business complies with the terms that govern the contract and makes the scheduled premium payments, the insurance is likely to remain in effect.

As with most types of insurance coverage, manufacturers and merchants hope that they never have occasion to use their product liability coverage. However, should a consumer file a legal action that is deemed reasonable and applicable by a court of law, the insurance will make it possible to settle the claim quickly. In many cases, product liability insurance can make the difference between the dissolution and bankruptcy of the company, or the opportunity to resolve the litigation, make any appropriate changes in the product, and continue to operate.

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latte31
Post 5

Suntan12 -I have to say that product liability insurance costs are very high because of all of these lawsuits with high damage amounts.

I feel that there should be some sort of tort reform so that manufacturers can continue their medical research and develop more advances in medicine.

I feel that if the damages were capped at a certain amount then drug manufacturers would not be hesitant to bring a product on the market. People suffering from life threatening illnesses need these potential product breakthroughs in order to continue living.

suntan12
Post 4

Cupcake15-I agree that many of these drugs get approved too quickly, but I also think that people want a quick fix to every problem they have.

For example, if you want to lose weight then take a pill. If you are sad then take another pill. If your child does conform like the other students in class, then give him a pill.

We are an overmedicated society and we have to learn to live in the moment not escape with a drug. Sometimes the pain in life is real and facing that pain is what helps you heal, the drugs usually prolong the inevitable.

While I understand that drug therapy works for many especially those with specific psychiatric disorders, it may not be what most people need.

If doctors prescribed medication less than it would reduce their medical product liability insurance as well as their malpratice insurance rates.

cupcake15
Post 3

Bhutan- I remember when Phen-Phen was all the rage and people could not get enough of this drug. People were losing dramatic amounts of weight yet along with their weight they were causing irreparable damage to their vital organs.

I know a lady who took Phen-Phen and now has severe heart problems that she never had before and this damage is permanent as there is nothing that could be done to reverse her situation.

I also wonder how safe Ritalin is for children. Again this drug has not been on the market long enough for any long term studies to be out about it. This is a bit risky because researchers and doctors alike cannot determine what if any potential risks there are for children taking this drug over the long haul.

Bhutan
Post 2

I understand that the FDA often approves products and then years later after a lot of negative results it pulls the products off the market.

I think that the cost of product liability insurance is highest among pharmaceutical drugs and medical devices. The problem in this field is that the pharmaceutical drugs get approved quickly without sufficient time to research any potential problems with the drugs.

Drugs like Vioxx and Accutane are currently under attack because many patients have become irreparably harmed.

For example, many users of Accutane have developed irritable bowel syndrome, colitis and even severe psychiatric problems leading to depression and suicidal tendencies.

Drugs like Vioxx even caused death in some patients before it was pulled off the market. These are serious side effects that should never have allowed these products to come out on the market.

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