A wholesaler in Medley sells space heaters to hardware stores across South Florida. One overheats in a customer’s apartment in Hialeah and starts a fire. The lawsuit names the store, the wholesaler and the overseas manufacturer. The manufacturer has no U.S. presence and never responds. The wholesaler, which never opened the box, is left defending the case.
That scenario is the reason products liability matters for distributors. Florida law allows an injured person to sue companies throughout the chain of distribution, not only the manufacturer, and the companies closest to the customer are often the easiest to reach.
Why Distributors Are Exposed
Distributors and wholesalers can be held responsible for a defective product they sold even if they did nothing wrong themselves. They usually have the right to pass the claim back to the manufacturer, but that right is only as good as the manufacturer’s insurance and its willingness to respond. When the manufacturer is overseas, small or out of business, the distributor bears the cost.
When a Distributor Becomes the Manufacturer
Importers that bring in products from abroad, and companies that sell products under their own brand name, can be treated as the manufacturer. So can distributors that repackage, relabel, assemble or modify products. Each of those activities should be disclosed to the insurer. See our articles on when importers are treated as manufacturers and product liability for private label brands.
How the Coverage Works
Products liability is usually part of the general liability policy, under the products-completed operations hazard, with its own aggregate limit. It pays defense costs and damages for bodily injury and property damage caused by products you sold. Underwriters price it on sales by product type, so an accurate breakdown of what you sell, and where it comes from, matters more than almost anything else on the application.
Vendors Endorsements and Contracts
The best protection is getting the manufacturer’s insurance to respond first. A vendors endorsement on the manufacturer’s policy names the distributor as an additional insured for claims arising from the manufacturer’s products. Supply agreements should require it, along with indemnity and minimum limits. Keep certificates and endorsements on file and update them at each renewal.
What Products Liability Does Not Cover
The cost of recalling products, replacing or refunding defective goods, and purely financial losses are generally excluded. Product recall coverage is a separate policy. Some product categories, such as certain supplements, vaping products or hazardous goods, may be excluded or require specialty markets.
Higher Limits
Retailers and large customers often require limits above what the primary policy provides. An umbrella policy adds those limits over products liability, auto and employers liability.
Protecting Your Business
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Know which of your products are imported, private label or modified.
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Require vendors endorsements and indemnity from suppliers.
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Keep records of where each product came from and when it was sold.
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Report sales accurately by product category.
For a complete overview, see our page on wholesaler and distributor insurance in Florida. Distributors that also manufacture or brand products should see our page on manufacturer insurance.
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Miami: 305-969-8776
Orlando: 407-993-2331
This article is general information and is not legal advice. Coverage depends on the terms of each policy.
