Owning a business has its challenges and rewards. It requires hard work, determination, time, and knowledge of finances. But it does not end here, you should also know how to protect your company from certain liabilities.
If your business has mistakenly caused harm to a customer or if someone made a false claim, it puts your business at risk of lawsuits. Moreover, it tarnishes your reputation in the marketplace. Knowing about product liability and preparing for it can protect your business from such threats.
What is Product Liability?
You are held liable if your products are said to pose a danger to the health of the customers. The manufacturer or seller or any person involved in the chain of distribution can be held accountable for product liability.
Law requires products to meet a certain safety level and expectations. If you don’t meet such expectations for your products, it can lead to liability issues.
How Does Product Liability Affect Your Business?
When a customer files a product liability claim, it can cost a huge amount of money for the business to fix it. Many cases have emerged with an increasing number of injuries and deaths resulting from defective products.
But if a false claim has been made against a business, it could cause a downfall in business operations. So it is important to understand liability issues and how you can protect your business from claims.
Types of Product Defects
When a product liability claim is taken to court by consumers, they will need to provide proof of how the product they purchased was dangerous due to defects.
There are typically three types of product defects that consumers can use to file a liability claim. This infographic from ProfileTree explains these three types quite well.
Let’s have a look at some of the common product defects.
1. Manufacturing Defect
As the name suggests, manufacturing defects are defects that are caused during the assembly and manufacturing of products.
2. Design Defect
This kind of defect is found in the product from the start even before they were manufactured. The way it was designed was defective which makes it unsafe for the consumers.
3. Marketing Defect
Even after the product was created, the task does not end there. You should market it well to provide sufficient information on how to use it. Also, include proper labeling and safety warnings of the products.
How to Stay Protected from Product Liability Risks?
Businesses that get products or product components manufactured for consumers should be responsible for ensuring the safety and care of use.
There are many ways how a business can reduce its risk of a liability claim. Let’s have a look at some of them.
Develop a Process that Reduces the Risk
The process for manufacturing should be risk-free to start with. And you should develop other processes that reduce the risk. For this, set procedures to communicate the expected timeline and cost of service, and have safety requirements. Besides this, having a maintenance and cleaning routine in check is very important.
The process that you develop will also depend upon your industry, business operations, and liability risks.
The most important step to protect your business from liability issues is to identify the risks and mitigate them. Consider anything that can cause harm to an employee or your company and can result in a lawsuit.
Some examples of risks that result in the legal action are injury, disease, equipment breakdown, product malfunction, errors, and delayed documentation. You can hire a professional to inspect the procedures to identify any risks.
Since your employees are directly involved in handling the products, they should be trained in proper processes to reduce risks. Many risk factors can be mitigated by action not just by planning.
Training employees should not end for a few weeks but it should be ongoing to teach them about any updates.
Develop Response Plans
Develop a response plan in case the worst happens so that you can be prepared for it. You need to consider the following things when developing a plan:
- How will your business protect employees and clients if the risk occurs?
- How can you protect your reputation and assets?
- How can you prevent a lawsuit in the event of risks?
Listen to Feedback
Ask for customer feedback to check how the products work for them. Listen to customer complaints even if there are minor issues. Seek internal and external surveys on your business.
Go for professional risk management advice to help mitigate risks.
Follow Relevant Laws
You should never start a business without knowing how the laws work in your field. Know what you are legally allowed to do. You should also know basic consumer rights so that you can efficiently run a business.s
This infographic from study.com explains a few important consumer rights you should know about.
It can be difficult to know about the laws on your own. You can hire a business lawyer from Thomas Law Offices to understand the laws governing your industry.
Test Your Products
Get your products tested according to standard protocols to see if it meets the expectations of the consumers.
Also, make sure to test the procedures and manufacturing equipment to identify problems. During the initial process, identifying the issue can get rid of the defective products themselves.
Keep Documents Safe
Keeping a record of your business documents helps in the event of a dispute or lawsuit. You need to save important documents such as emails, contracts, invoices, and payment records.
Keep a backup of your documents in case physical copies or computer data gets lost or stolen. Upload your data to the cloud for backup and security.
When it comes to liability issues, you need to have insurance when the worst-case scenario happens. If you are unable to avoid a lawsuit, insurance will help cover the costs associated with it.
There are many types of liability insurance depending on your business. Some of the common types are as follows:
- Product liability
- Director’s liability
- Cyber liability
- Commercial Liability
- Errors and omission coverage
The type of liability you choose depends upon how you run your operations and how much protection you want the insurance to cover. You can work with an experienced commercial insurance company to find the right coverage for your needs.