Product liability is the coverage that protects you when something you sell or manufacture causes harm to a customer. For cannabis operators, food and beverage businesses, and pet retailers — anyone selling consumable, ingestible, or topical products — it's often the single biggest exposure on the policy.
The question most operators don't ask until claim time: are my limits actually enough?
How product liability claims add up faster than operators expect
A single product liability claim has multiple cost layers:
- Defense costs. Even if you ultimately win, defense alone for a meaningful product claim runs $50K–$200K+.
- Settlement or judgment. Adverse-event claims involving health impacts often settle in the $100K–$1M+ range.
- Recall costs. If the claim involves an actual product defect, you may need to recall affected lots from the supply chain. Recall costs are often separate from defense and settlement.
- Class action multiplier. One adverse event affecting one customer often surfaces several similar prior incidents, turning a single claim into a class action.
How to size your limits
A practical method: pick a reasonable worst-case scenario and confirm your limits cover it.
Three benchmarks to consider:
- 1× annual revenue. The minimum for any business with meaningful product exposure. Below this and a single claim can be existential.
- 2–3× annual revenue. Recommended for businesses with ingestible products, regulated industries, or class-action exposure.
- 5× annual revenue. Appropriate for operations with high product liability exposure (cannabis edibles, supplements, ingestible CBD, food service with allergen risks).
These are rules of thumb, not strict requirements. Your actual limit should reflect your products, customers, and risk tolerance — evaluated with your broker.
The aggregate vs occurrence trap
Most product liability policies have two limits: per-occurrence (the maximum for any single claim) and aggregate (the maximum total across all claims in the policy period). Operators often look at the larger occurrence number and forget the aggregate.
If you have a $1M occurrence / $2M aggregate policy and you have two unrelated $1M claims in the same year, the second claim is uncovered above the aggregate.
Three questions to ask your broker
- What's my per-occurrence and aggregate limit?
- Does my limit account for defense costs, or are defense costs eating into the limit?
- What's the recall coverage limit, and is it separate from product liability?
All coverage is subject to underwriting.
