There are several forms of liability insurance available to entrepreneurs. Identifying the appropriate form to purchase in order to meet the needs of your company is often tricky. For instance, you want to manufacture a type of toaster that will allow the users to set the timer to a specific time, similar to coffeemakers. In this case, you will need a product liability policy. A product liability policy covers a broad area, involving retailers, suppliers, manufactures, and distributors who are related to the manufacture, sale, and purchase of toasters.

Strict liability involves only the manufacturing company. It encompasses the product and its manufacturing process, even if the product contained no intentional flaws. Negligent liability is involved when the manufacturer knew there was a flaw and chose to ignore the flaw. Lastly, there is the breach of the warranty, whether it was a full or limited warranty, when it is not honored.

Each state has a different set of regulations and laws to address these forms of liabilities. Considering yourself as a manufacturer of toasters, answer the following questions:

• What are the various product liability laws and regulations present in your state?
• Considering your state’s laws and regulations, determine:
  • What type of policy covers all three liabilities?
  • Is there a requirement of a policy that covers suppliers, retailers, and distributors?
  • What is the time limit on product liability? How long are you liable and responsible to the customer in the event the toaster is defective and causes injury?
  • What are your responsibilities in case you decide to close your business?

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