You may think that product liability insurance isn't necessary for your business because you have the experience and conscientious attention to detail to avoid anything going wrong with your product, but that's not a realistic stance. The truth is, there's always room for errors, mistakes and oversights that can have serious consequences. The reason why it's so important to have this type of coverage is that there are always opportunities for something to go wrong at some point in the design, manufacturing and distribution processes that could lead to claims of injuries or damage caused by the product—and the costs of defending yourself in court against those types of allegations can be astronomical.

Most businesses and business owners don't have room in their budgets to handle legal and settlement costs exceeding a million dollars and continue to climb from there. Settlements for product defect claims can be very high since, unlike typical liability claims for injury or damage, there's the potential for many people to be affected by the defective products. Product liability insurance in Ontario is the best way to give yourself the peace of mind that comes with knowing you won't have to pay out of pocket for the litigation and settlement costs associated with a product liability situation.

It's also important to remember that your product doesn't have to be defective for a third party to bring legal action against you. You could be sued because your product allegedly caused damage or injury and found to be not liable for product flaws in court, but you still have to pay the costs associated with your legal defence. With product liability insurance, Ontario business owners can expect to receive insurance compensation for legal expenses up to the coverage limits on the policy, whether or not they are ultimately found to be liable.

No, it's not—most types of commercial insurance are not legally mandatory in Canada, and product liability insurance is no exception. However, just because the government does not legally require it, that doesn't mean other parties won't require you to have it before they agree to work with you. It's expected—and a good idea—for suppliers, distributors, retailers and others to request to see a certificate of insurance that lists product liability insurance with an adequate coverage limit because they need to know that you will be able to handle the costs of litigation and settlements if a defective product is issued.

If you don't have the insurance coverage they are looking for, they may decline to work with you, which means you will be forced to pass on lucrative contracts that would enhance the success of your business.

This is a common misconception, and it makes sense that they get confused with each other, but product liability insurance and commercial general liability insurance (CGL)are different. A CGL policy covers the cost of litigation and settlement for third-party bodily injury and third-party property damages that are allegedly caused by you or your employee but not by your product. For example, if a customer visited your commercial location and injured themself when they slipped on an ice-covered walkway that hadn't been salted, they could choose to sue you for causing bodily injury. The resulting expenses would be covered by your commercial general liability insurance, up to the coverage limits on your policy.

Product liability insurance is a specific type of commercial liability insurance that applies to the legal costs of third-party bodily injury and third-party property damage situations that are allegedly caused by your product. For example, if you manufactured a food product that became contaminated by an allergen and a number of consumers were seriously sickened when they ate it, they could bring legal action against you to recoup costs such as medical expenses and more, and the costs of your legal defence and settlements would be covered by your product liability insurance in Ontario, up to your policy's coverage limits.

Liability for services you provide can be covered by insurance but not by product liability insurance. Product liability coverage exists specifically to address the costs of litigation that result from claims that a product caused third-party property damage or bodily injury, which means it does not apply to the legal costs that result from damage or injury caused by services you provide.

• You manufacture clothing for infants and small children, and one of the items you produce includes a choking hazard that causes injury to a baby. The baby's parents sue you for causing bodily harm to their child, and you file a product liability claim to receive insurance compensation to handle the cost of defending yourself in court and covering the expense of the settlement once you are found liable.
• Your business manufactures food products, and on the label of one of your products, you fail to include sufficient warning of an ingredient that could cause allergic reactions. Several people suffer allergic reactions and file a joint lawsuit against you for bodily injury. Your product liability claim results in financial assistance to handle the expenses of litigation and settlement.