Businesses participating in the stream of commerce, whether they are designers, manufacturers or sellers can all face the threat of a product liability lawsuit brought by a consumer alleging the product they were sold was defective.
Product liability lawsuits can be devastating to a business, and at times may seem unfair. This is especially true if you are being sued for another participant’s mistake.
For example, you may have sold the product, but you did not manufacture it or design it. Still, as a participant in the chain of commerce for that product, you could face liability.
One solution that can protect your business against product liability claims is negotiating an indemnification agreement with other participants in the design, creation and sale of the product.
What is indemnification?
Indemnification is a form of subrogation. You can negotiate an agreement with others in the distribution chain stating that they will be financially responsible for any product liability claims associated with the product.
Indemnification can be a controversial topic to approach to those upstream in the chain of distribution. You are asking them to hold you harmless and possibly pay significant damages in a subsequent lawsuit.
Ultimately, you are asking them to take over all liability for damages resulting from a lawsuit. In addition, they cannot seek damages from you if they are sued and will fully defend you in court if you are sued.
Still, it is possible to negotiate an indemnification agreement, as long as there are clear limits on liability. A fixed sum gives the other party security in knowing exactly how much they have to lose.
While there remains the possibility that you could be sued for damages above and beyond this limit, knowing the other party will assume some responsibility for product liability claims can provide you with the reassurance that you will not be held solely responsible for another’s alleged mistakes.