You have just recently opened your first toy store. You inwardly smile as you see the children with their parents, running around the store thrilled with all of the sights that greet their eyes: the talking Barbie dolls, the remote-controlled dump trucks, the giant castle play area for a backyard.
Suddenly you realize that a little girl over on aisle four is looking over one of the newest products to your shelves, a mini-bake oven.
For a moment, your mind frets over potential issues if the little girl doesn’t like the product, but then you have a mental sigh of relief because you know you have liability insurance for small business coverage.
Many new business owners would like to dismiss the need for liability insurance for small business, but there is a very good chance that this is a decision they will come to regret.
Once you choose to enter the “stream of commerce” you become part of the chain of people that can be sued for damages if a product is faulty in some way.
Just because you didn’t manufacture the product doesn’t matter, the law says if you are going to actively sell something, you become responsible to a certain degree if that product should be defective in some manner.
There are three basic areas which are usually covered by liability insurance for small business, they are manufacture and production flaws, design defects, and defective warnings or instructions.
Manufacture and production flaws are when something goes wrong in the production process and creates a flaw. This means the product will fail even though that was never the company’s intention.
While you are not actually part of the manufacturing process, you are considered liable because you are offering that product for sale to the public.
Design defects are those flaws in a product which make that product inherently unsafe. One very famous example of a design defect was in the production of the Ford Pinto in the 1970’s. Because of its design, the Pinto was more liable to catch on fire than most other cars on the market.
This knowledge came out after thousands of them had already been sold to the company. Quite a few dealerships were forced out of business because they had sold this car to people and didn’t have any liability insurance for small business.
When the news of the Pinto flaw got to the public, they demanded their money back first from the dealerships. When a product doesn’t carry proper warnings or instructions, retailers can also be held liable for these errors. This is why McDonald’s coffee cups all carry very strong warnings about the temperature of their coffee.
If you are going to run any type of business where you will sell a product or repair a product, it is vital that you have liability insurance for small business to help protect yourself against claims of damaged products.