Having manufacturing insurance is vital to the success of your business. It protects your company against property, liability, business interruptions, and workers’ compensation risks. However, given that the manufacturing industry is often vulnerable to numerous risks for employers and employees, it’s crucial to find an insurance provider with a customized insurance policy that protects all parties involved.
Types of Insurance for Manufacturing Companies
What insurance should a manufacturer have? Insurance for manufacturing companies comes in different forms. Examples include:
General Liability Insurance
This type of insurance covers a variety of scenarios such as customer injury, product liability, customer property damage, and advertising injury. It protects your business from litigation costs and safeguards your income and assets.
Products Liability Insurance
Product liability insurance has one of the highest average claim payouts compared to the other types of insurance. This type of insurance protects manufacturers from legal liability resulting from a defective product if it causes personal injury or any other kind of damage associated with the product’s use.
Product liability insurance can be part of general liability insurance except for manufacturers of highly-hazardous products who have to purchase it separately.
For instance, aerospace and energy companies manufacture various hazardous products that serve different industries. As a result, product liability for such manufacturers can’t be included in the general liability policy.
Property Insurance – Equipment Breakdown
Manufacturers rely on various equipment for their day-to-day operations. Unfortunately, these equipment are usually expensive to repair or replace when they break down.
By purchasing equipment breakdown insurance, you’ll be insured against equipment damage and the losses you may incur if a machine malfunctions. Additionally, the insurance provider can help you replace the damaged equipment and cover your net income, including payroll, for the time you’re unable to use the faulty equipment. Exclusions do apply.
Manufacturers Errors and Omissions (E & O) Insurance
This type of insurance is essential for manufacturers because it provides coverage in scenarios where general and product liability insurance don’t apply. For instance, commercial general liability insurance doesn’t protect your business from litigation arising from product failure resulting in third-party financial loss with no bodily injury or property damage. On the other hand, E&O insurance covers manufacturing errors and omissions.
Other scenarios covered by E&O insurance but not general liability policies include faulty workmanship, impaired property, and inadequate work performance.
Suppose a buyer requests you to manufacture a particular product according to their specifications outlined in a contract and needs you to ship it by a set deadline. Unfortunately, an error occurs during the production process, and the product isn’t made according to the customer’s specifications.
When you ship the product to the buyer, they realize they can’t use it for its intended purpose and request a remake. However, your company experiences a delay in production, and the buyer misses the deadline to ship their final product to their customers. For this reason, they may decide to file a lawsuit against your company.
Without the right insurance policy, your company may be exposed to significant liability. However, if you have E&O insurance, you don’t have to repair or replace defective products out of pocket. The insurance policy will cover both the customer’s financial loss and legal costs.
Intellectual Property Insurance
This type of insurance helps your company pursue infringement claims or defend itself against third-party infringement claims for patent, copyright, or trademark.
Suppose the third party seeks to prevent further sales of your products by alleging that they infringe their intellectual property rights. In that case, the IP insurance will cover the legal costs required to defend yourself against the IP infringement claims.
On the other hand, if a third party infringes on your company’s patent, trademark, or copyright, the IP insurance covers the legal costs of pursuing infringement claims.
Workers’ Compensation Insurance
This type of insurance pays for medical bills and time off for employees injured while working in your company. It also covers employees who suffer occupational sickness due to their job environment.
Product Recall Insurance
As a manufacturer, there are times when you may need to recall your product from the market if deemed unsafe, defective, or contaminated. However, the process of recalling such products is costly and may damage the reputation of your business. For this reason, product recall insurance helps you settle the financial costs associated with recalling products from the market.
Inland Marine – Cargo Insurance
Inland marine/Cargo insurance is a type of business insurance that helps cover products, materials, and equipment while they are transported on land, such as by truck or train. This coverage is meant to help protect business property that is movable or used for transportation or communication purposes.
Commercial Auto Insurance
This is designed to cover you or an employee if involved in an accident with a personally owned vehicle that’s used for work.
Tenant Legal Liability
You may require tenant legal liability coverage if you operate your manufacturing business on rented property.
Additional Manufacturer Specific Types of Insurance
When selecting an insurance policy, you should consider the risks associated with your specific manufacturing business and the products involved. Below are some examples of common manufacturing businesses and the type of light manufacturing insurance recommended for each:
Metalworking insurance is customized for auto parts, industrial machinery, metal casting, metal stamping, machining, etc.
Plastics and rubber goods insurance is for manufacturers of rubber products, packaging materials, plastic bottles, containers, etc.
Electronic component insurance comes in handy if you manufacture electronic products; you may need an insurance provider with policies tailored to the electronic manufacturing industry.
Food processing insurance is necessary if you’re involved in the food and beverage industry. You need comprehensive insurance specially designed for the unique vulnerabilities of your business.
Chemical manufacturing insurance is specially tailored for companies that manufacture, distribute or blend chemicals. The insurance coverage provided to the chemical industry includes the following:
- property damage
- directors’ and officers’ liability
- business interruption
- automobile liability
- occupational disease
Breweries/distilleries/wineries insurance is a must for manufacturers of alcoholic beverages that face unique risks and numerous challenges that can endanger the safety of their employees and customers. Such risks can also negatively impact sales and the business’s financial standing. Therefore, when selecting an insurance provider for this industry, choose a comprehensive insurance program tailored to your unique business operations.
The policy should provide coverage for:
- employment practices liability insurance;
- product withdrawal expense;
- errors and omissions;
- built-in liquor liability;
- food spoilage;
- umbrella and excess liability;
- and other general liabilities.
The Bottom Line
Having manufacturing insurance is one of the best ways to protect your business in this world of lawsuits. Since manufacturing industries are prone to accidents and other incidents that could easily trigger a lawsuit, this kind of insurance gives you peace of mind knowing that your business and assets are safe from liquidation and the cost of litigation.