Product Liability Insurance

ewlsey · Mar 22, 2013

Does anyone here have product liability insurance? I called around today trying to get a quote and only one place would even consider it. Most were fine with insuring the shop until I said that we do design work and make our own products.

I have insurance now, but not product liability. It's getting to be a big part of our business, so I want to cover my ass.

I'm not making airplanes, pieces of airplanes, guns, race cars, or anything that seems inherently dangerous. We design and build fixtures and tools for other shops and manufacturers. They are all used by professionals.

I'm a degreed mechanical engineer with 10 years experience. I do all of the design work.

Any thoughts? It basically sounded like no one would cover us for product liability unless we already had product liability coverage. How are you supposed to get the coverage started?

SND · Mar 22, 2013

My advice is get a good insurance broker, have him/her do the work, they seem to have access to companies we'll never hear of.

I just turned down something I was gonna get into because the insurance cost made it unjustifiable.

Good luck.

Oldwrench · Mar 22, 2013

ewlsey said:
Does anyone here have product liability insurance? I called around today trying to get a quote and only one place would even consider it...

Commercial liability insurance is mostly limited to slip-and-fall coverage. Insuring your company against liability for products you design would be extremely costly and would involve a lot of exclusions (and I don't wanna think about the deductible). Ask an OB-GYN about malpractice insurance; in some fields the malpractice insurance premium can amount to a third of the doctor's earnings. They pass it along to their patients, but in the competitive world of machining that's usually not an option.

And yes, you don't make parts that fly...but remember McDonald's getting sued for their coffee being too hot when some twit spilled it on herself? It doesn't get any more low-tech than that.

There was an extensive thread on this subject a few months ago with a good variety of viewpoints...

ewlsey · Mar 22, 2013

The view points range from "must have it" to "it's worthless anyway".

I've never heard of another shop in my situation being sued or even having a claim, but I don't want to be first without something to cover me.

Obviously this is possible. Whoever you guys are making these parts for should have it. I just don't know how to get into it. I've got two brokers on the hunt. Maybe they will come up with something.

Heavey Metal · Mar 22, 2013

Have all your drawings stamped by a pe.

Let him tote the liability.

You dont have an umbrela policy?

kpotter · Mar 22, 2013

I looked into it. The cost was very very high. The more you sell the higher the cost the longer the product lasts the higher the cost. If you dont have it you wont get sued. If you have it attorneys will take the case, if you dont have it and are not insanely wealthy they will not take the case.

ewlsey · Mar 22, 2013

Heavey Metal said:
Have all your drawings stamped by a pe.

Let him tote the liability.

You dont have an umbrela policy?

Not sure what you mean. We're not building bridges or fire suppression systems that have to meet some government code. Very few engineers bother with a PE outside the realm of public works or commercial building. There's no stamping of drawings in the automotive world.

Define umbrella.

HuFlungDung · Mar 22, 2013

How can the risk be quantified? How will someone be harmed by the product you make?

It is likely an impossible dream to try to prevent oneself from being sued for something.... we are all literally wide open targets, if we appear to be financially able to pay.

ewlsey · Mar 22, 2013

HuFlungDung said:
How can the risk be quantified? How will someone be harmed by the product you make?

It is likely an impossible dream to try to prevent oneself from being sued for something.... we are all literally wide open targets, if we appear to be financially able to pay.

That's why insurance companies have actuaries and ask me 10 billion questions.

So no one here has liability insurance for design work?

Conrad Hoffman · Mar 22, 2013

I've always wondered, can you have as part of your corporate rules that the company isn't permitted to have more than $x in assets of any type? Everything has to be rented and profits paid out over a certain amount. Nobody will sue a company that doesn't have enough assets to cover the legal work.

snowman · Mar 23, 2013

Oldwrench said:
And yes, you don't make parts that fly...but remember McDonald's getting sued for their coffee being too hot when some twit spilled it on herself? It doesn't get any more low-tech than that.

If you actually read the details of the case, you will likely agree that McDonalds was quite negligent in that situation for refusing to cooperate AT ALL, and feeling that the woman was nothing but a twit.

snowman · Mar 23, 2013

The Actual Facts about the Mcdonalds' Coffee Case

During discovery, McDonalds produced documents showing more than 700 claims by people burned by its coffee between 1982 and 1992. Some claims involved third-degree burns substantially similar to Liebecks. This history documented McDonalds' knowledge about the extent and nature of this hazard.

McDonalds also said during discovery that, based on a consultants advice, it held its coffee at between 180 and 190 degrees fahrenheit to maintain optimum taste. He admitted that he had not evaluated the safety ramifications at this temperature. Other establishments sell coffee at substantially lower temperatures, and coffee served at home is generally 135 to 140 degrees.

Further, McDonalds' quality assurance manager testified that the company actively enforces a requirement that coffee be held in the pot at 185 degrees, plus or minus five degrees. He also testified that a burn hazard exists with any food substance served at 140 degrees or above, and that McDonalds coffee, at the temperature at which it was poured into styrofoam cups, was not fit for consumption because it would burn the mouth and throat. The quality assurance manager admitted that burns would occur, but testified that McDonalds had no intention of reducing the "holding temperature" of its coffee.

Plaintiffs' expert, a scholar in thermodynamics applied to human skin burns, testified that liquids, at 180 degrees, will cause a full thickness burn to human skin in two to seven seconds. Other testimony showed that as the temperature decreases toward 155 degrees, the extent of the burn relative to that temperature decreases exponentially. Thus, if Liebeck's spill had involved coffee at 155 degrees, the liquid would have cooled and given her time to avoid a serious burn.

McDonalds asserted that customers buy coffee on their way to work or home, intending to consume it there. However, the companys own research showed that customers intend to consume the coffee immediately while driving.

That's willfull neglect.

Oldwrench · Mar 25, 2013

Wow, I stand corrected about the McDonald's suit. Sounds like willful neglect pretty far up the chain. But still, it illustrates that the OP is potentially vulnerable to lawsuits--as are we all--particularly if he has employees. Somehow I can't see Ray Kroc consenting to 185-degree coffee. He would have hit the ceiling.

But then McDonald's is a far cry from the value per dollar they provided circa 1965. One suspects that given their numbers they might have dispassionately considered the risk of scalding coffee a tradeoff. What's 700 claims over a 10-year period against Billions and Billions served? Some infinitesimal percentage, akin to the number of wrongful-death suits from plane crashes over a similar period, or something along those lines. Given a large enough enterprise, is zero defects possible indefinitely? It can't be.

I think my comfort zone regarding product liability would be in staying just small enough to retain undiluted control over everything that is done in your company's name.

Parkerbender · Mar 31, 2013

We are getting $1m product liability, and $1m umbrella on top of that from Sentry insurance, for like $3200ish, or something... I have no clue if that is good or bad, but they were super easy to deal with, and after fighting with idiot insurance people, I felt it was worth it to just be done dealing with idiots... Just a warning, we almost had to make a $50k claim a few weeks ago, due to a mistake we made and we wrecked a bunch of customer supplied pistons (which were wrecked in the first place, for F's sake...) And they were super cool about covering it, but then found that if we had actually claimed, we would have been dropped... "the underwriters don't expect to pay on a claim in the first few years of a policy". ...dicks. But, I think still a deece option, till I find a better one...

bugman53 · Apr 20, 2013

I priced out liability insurance a few times for the motorcycle shop and it was outrageous. Under most states if someone dies(worse case) from a clear cut problem you caused(i.e. leaving the wheel loose on a motorcycle) Then the family can sue you for 10 times their salary and if there are kids involved possible their salary until the kids are 18. But that varies depending on the state. It was in the neighborhood of 2K a month for full liability coverage 24K a year. I hate to look at it this way but if someone sued you every 15(unlikely) years it would be cheaper using the average salary of a working man in America that it would be to carry insurance. The present worth of the investment is just not there.

In your case the probability of someone getting hurt is a lot lower and it would be hard for them to prove it was a problem with the jig and not operator error. Do a present worth analysis of what it would cost for insurance vs. what you think an injury would cost you and that will give you an idea of if it is worth it or not.

ewlsey · Apr 20, 2013

Parkerbender said:
We are getting $1m product liability, and $1m umbrella on top of that from Sentry insurance, for like $3200ish, or something...

I was able to do better than that. $1 million per claim, $2 million total, plus $1 million umbrella, and all the other liability coverage and a few goodies like break down coverage, inland marine for equipment taken out of the shop, hired non-owned coverage for my truck. A bit cheaper than your price.

Cincinnati Insurance through a local agent.

Seekins · Apr 20, 2013

We have to have product liability insurance to sell through certain distributors. They are the ones that require it. We make parts that are the hardest to find insurance for (guns) and we pay a % of the gross sales. This is in addition to all the other insurance policies that have to be in place to operate. If i ever open another business its going to be a insurance company!!

ancient one · Apr 23, 2013

I closed my shop awhile back after 35 years. Most of our products were to customer desig but a significant amount were our own product designs. When I asked an attorney about getting product liability insurance ,he asked how much was my business worth and was i an LLC or incorporated. If incorporated and something happened only the corporation assets wer in jeporady.
I suggest you consult an attorney about the corporate protection befor you go for insurance.

Product Liability Insurance

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