Product liability insurance

[Larry Arsenault]

I have a question about the need for product liability insurance. I sell my products through local craft markets as well as online to domestic and international customers through my Etsy shop. I’m wondering two things 1) whether I should be carrying product liability insurance ( the only thing I can think of is that someone might have an allergic reaction to the wood or one of my finishes - I only use food-safe finishes), and 2) if insurance is recommended, whether I can purchase insurance through the AAW or whether the AAW has an affiliation with an insurance company that caters to woodturners. Any information or insights would be greatly appreciated.
Larry A.

 

[Ed Davidson]

You'd be better off setting up an LLC for your business, isolating liability to a legal entity not tied to your personal assets.

 

[robo hippy]

I was advised to set up an LLC by a lawyer and my accountant. Not a bad idea. There is a difference if you manufacture tools for sale, and your wood ware products. Some insurance companies won't touch manufactured tools. I got the best coverage from the Hartford. They would cover small businesses. Some companies would only cover big businesses.

robo hippy

 

[Timothy Allen]

My wife carries an "Artisan" policy for her pottery business from Maine Mutual Group (they are in several states besides Maine).

 

[Roger Wiegand]

If you have any assets worth going after then I'd regard general business and product liability insurance as essential. People can sue you for almost anything, and even if it's stupidly ridiculous you can incur substantial legal fees to get it dismissed. It's worth it to have the insurance company between you and them. The LLC will provide limited protection, talk to an attorney in your state before depending on it for protection, but it won't shield you from the legal fees.

I'm surprised craft markets don't demand proof of insurance.

Then it becomes an issue of whether it is worth it. In MA the baseline general business liability policy runs about $1000/year, I've never looked into product liability, but I'll bet it's more. For myself it would be a near miracle to sell enough stuff to pay that back, so I just give my turnings away, many through a charity gift shop in town (personal/homeowners liability covers me for that)

Insurance through a professional or hobby organization is very often a much better deal and is well worth pursuing. Does AAW offer such a scheme? A woodworkers or artists guild within your state might be a place to look. It's hard because of the fragmented nature of state regulation of insurance in the US.

If you have no assets to speak of or don't mind the risk then of course you can just proceed.

 

[John Torchick]

Check on the taxation of a corporation of any kind. My father and I looked into incorporating for our sales business. Our CPA/attorney said to keep it as a partnership. We would be taxed twice, once as a corporation and then as individuals.

 

[Brian Gustin]

Check on the taxation of a corporation of any kind. My father and I looked into incorporating for our sales business. Our CPA/attorney said to keep it as a partnership. We would be taxed twice, once as a corporation and then as individuals.

Depends on how the corp is set up.. an S-Corp is pass-thru so bottom line profits from it go on your (the shareholder's) personal taxes, with the s-corp paying no taxes by itself.. ( I had an S-Corp til closing in 2019-2020) However... my own experience is that the corporation structure is just a royal PITA for smaller business doing less than half million a year... if I knew then what I know now, I would have done an LLC instead... I may do that if my woodwork starts to sell (and/or I get commissioned work, etc) LLC I think gives you a bit more protection than a partnership, which was the point, I believe of that portion of the discussion.. of course, talking it over with a CPA And attorney (or tax attorney better yet) would be an obvious thing to do before deciding.. (I wish I had, but out here in the boondocks, there's not much in the way of Tax Attorney type folks.. CPA suggested one thing, "Business" attorney wouldn't even suggest anything without a hefty retainer paid up front... )

 

[Dean Center]

Larry, most of us are in the US, so most of the responses you get will be based on US laws and entities and so on. If you stay in Canada and don't sell anything to litigious US citizens, you may be just fine, maybe with a disclaimer tag on your bowls and such.

In case it helps, I purchase an Umbrella Liability policy from my homeowner/auto insurance company that provides higher protection limits than typical for standard policies. It used to be inexpensive. I'm not in business selling stuff and the policy is mostly to protect against greedy slip and fallers, so it might not work for you.

 

[Larry Arsenault]

Larry, most of us are in the US, so most of the responses you get will be based on US laws and entities and so on. If you stay in Canada and don't sell anything to litigious US citizens, you may be just fine, maybe with a disclaimer tag on your bowls and such.

In case it helps, I purchase an Umbrella Liability policy from my homeowner/auto insurance company that provides higher protection limits than typical for standard policies. It used to be inexpensive. I'm not in business selling stuff and the policy is mostly to protect against greedy slip and fallers, so it might not work for you.

Thanks Dean. You’re right that the legislation is a little different in Canada and I admit to sharing your concern about the US tending to be more litigious. In fact, a lot of my Etsy sales are to the US, hence my concern. I have one quote so far but it’s $1600 a year which is a lot in relation to my sales. I have a couple of Brokers looking for me. Hopefully one comes back with something more reasonable. I keep getting told that because of Covid, a lot of insurance companies are very reluctant to take on new business.
Thanks to all of you for your quick responses and helpful advice - much appreciated!

 

[Tom Albrecht]

Oh no! Now here's another rat's hole to wander in just as I'm about to go to market.

 

[Perry Hilbert]

As an attorney that brought products lability cases against manufacturers, I am amazed by both the lack of forethought put into some products and OTH, the imaginative lengths some attorneys will go to to make a case. The one that 20 years later still has me wondering. Two drunks were leaving a bar in a rural state on a foggy rainy night. The passenger fell asleep/passed out. They hit a black mule in the middle of the road. Passengers face went through the windshield and he suffered cuts so severe, he lost both eyes. His lawyer sued and a jury gave a recovery against? .............. druuuumm rollllllllllllllll, the manufacturer of the electric fencing wire for failure to warn that electric fence is only a psychological barrier and is not a fool proof way to confine animals.

Some how some way, some jerk will sue because wood is combustible under some unbelievable circumstance or some other far fetched idea.

As for an LLC, check closely with your attorney. Normally a limited liability corporation protects every one, except the employee that does the negligent act. In a one man operation, that person is the one who really thought he was protected from suit. ie, the LLC is a waste of resources for a one man operation.. Your state laws might be different, but I doubt it.

 

[Randy Anderson]

Been going to markets for a few years now but never set up an insurance policy for it. My agent says my umbrella policy won't cover business type activities off premises so got a quote for a $1M per incident policy - $475/yr. My understanding is that these policies are not really for product related liabilities as much as coverage for while at an event - slips, falls, tripping, shelves falling, drop a big bowl on their foot, etc. to make sure the event organizer is not exposed. Filling out an application now where the event sponsor, a local city, appears to be specific on making sure the vendors have coverage. Have never had them pay attention to it before.

 

[Mark Jundanian]

@Perry Hilbert , does forming an SC corp provide any liability protection?

 

[John Torchick]

@Perry Hilbert , does forming an SC corp provide any liability protection?

Check with a lawyer acquainted with your state laws. I shudder to think those of who sell road-side swings, etc. One broken swing/chair and you are in deep do-do. I looked into a fishing guide business. Liability insurance was so high, I would have to work 3-4 months to break even. Only found one agent in town who would offer it.
Check with a CPA on incorporating. My father and I had a sales business. Our CPA/attorney said any incorporation was double jeopardy- corporate taxes and individual income taxes.

 

[Perry Hilbert]

@Perry Hilbert , does forming an SC corp provide any liability protection?

In every state that I am aware of the person who does some negligent thing is responsible for the act and damages caused by such act or omission regardless of the business entity he may be employed by. A one man operation is rarely protected by being incorporated. Things change entirely when a second person/employee comes into the picture. You employ a person to drive a load of goods to a show while you are busy selling and the person runs a stop sign and causes an accident. Incorporation won't protect the corporate assets but it will protect the owner's separate assets. In many cases it is cheaper and far less hassle to just get liability insurance for the operation rather than incorporate. The major exception is where there are several people acting for the operation and insurance is just too prohibitively expensive. And when you get beyond the casual once in a while employee, a whole new set of liabilities for worker's comp, etc arise. If you have a craft business with a partner or have employees, even infrequent ones, incorporation can save many headaches. But for a one man operation, it does no good. The other part about products liability that has not been mentioned is strict liability. Strict liability makes the business liable regardless of the amount of care used. For instance, let's say you order mango wood to make bowls and the supplier sends you highly dangerous manchineel instead. Since the wood is dried, it does not bother you, but a person that puts a liquid into it draws out the poison and is severely injured. You are on the hook regardless of how much care you used. is your are strictly liable.

 

[robo hippy]

From experience with a family business in the midwest, much of the time, a liability suit is basically an attempt to get some money and have you settle out of court to avoid the cost of litigation. Fighting it, if you are in the right, may be expensive, but it will save you in the long run, in part by having your liability insurance rates go down. Depends on the situation.

robo hippy

 

[Randy Anderson]

In my time of doing markets over the past few years only one has requested each vendor to show proof of liability insurance. I may be wrong but I consider the risk of actual "product" liability from one of my bowls too low to carry insurance for and the markets I've been at carry their own umbrella coverage for the event, or at least don't require vendors to. The one event that I was considering that does require it I likely won't participate in unless I can find a single event policy that is very low cost. All of my bowls and hollow forms are from local trees so not dealing with any exotic species.

 

[Chris Lawrence]

Does AAW offer such a scheme?

Yes they do. I get coverage from the Hartford through the AAW. Its around $450 a year in my area.