Sadler is an insurance agency that specializes in helping start-up businesses with their Product Liability insurance needs. We speak to numerous of inventors and engineering firms. Most think their primary goal is to sell their technology or license their products to companies.
Unfortunately, many inventors and engineers believe they no longer have a Product Liability risk after selling their technology or manufacturing license to another company. Nothing could be further from the truth.
It’s important to understand that Product Liability laws are not based on proof of negligence. They are based on strict liability. Strict liability means that you are responsible if you are deemed to be the seller of a product that proves to be defective. A seller is anyone in the chain of commerce who creates a product or places it in the hands of a consumer.
Defective means something in the design, instruction/warnings and manufacturing is inadequate and results in a dangerous product for the consumer.
It’s important to understand that there are no federal Product Liability laws. Such laws are state-specific and interpretations vary greatly from one state to another. For example, some states recognize the “Apparent Manufacturing Doctrine.” It imposes liability on a trademark licensor who has been proven to participate in the design, manufacture or distribution of a dangerous product.
Most state laws consider the inventors and engineers to be in the best position to understand the dangers associated with their products or technology. They’re able to anticipate any adverse effects. They have the burden of taking necessary steps to warn users against the risks.
How can inventors or engineering companies that develop products or technology and want to sell the licenses protect themselves ?
The first thing to do is contact an attorney to draw up an indemnification agreement. It should make the licensee responsible for design defects for all Product Liability claims, including design defects.
Second, request that the licensee purchase a Product Liability insurance policy naming you as additional insured on the policy. The specific endorsement you should request is CG 20 35 10 01, Additional Insured – Grantor of Licenses – Automatic Status When Required by Licensor.
And third, if you’re very risk averse, purchase your own Product Liability policy. For more information use the contact us form or call (800) 622-7370.
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