What Is Vendors Coverage and How Does It Work?

Vendors coverage is a specialized form of business insurance that extends liability protection to businesses selling or distributing products manufactured by another entity. It shields retailers, wholesalers, and other distributors from risks and financial liabilities arising when a product causes harm, even if the vendor did not create the product itself.

Defining Vendors Coverage

Vendors coverage is insurance protection a product manufacturer extends to entities selling or distributing their products, such as retailers, distributors, and wholesalers. Its purpose is to protect these vendors from liability claims arising directly from a defective product they sold but did not produce. Product liability laws often hold all parties in the distribution chain responsible for damages caused by a faulty product, regardless of who manufactured it.

This protection is added to a manufacturer’s general liability insurance policy through an endorsement. An endorsement modifies the existing policy to include specific terms or parties, formally extending the manufacturer’s product liability coverage to designated vendors.

Manufacturers provide this coverage because, under product liability laws, a vendor can be held liable for injuries or damages caused by a product they merely sold, even without involvement in its design or manufacturing. By extending their insurance, manufacturers encourage vendors to sell their products without fear of incurring significant product liability costs. This arrangement can prevent product liability claims from negatively impacting a vendor’s general insurance premiums.

The coverage ensures that if a product causes harm, the manufacturer’s policy can respond to claims against the vendor, rather than forcing the vendor to rely solely on their own insurance. This arrangement helps maintain stable business relationships throughout the supply chain by providing an additional layer of security for vendors.

What Vendors Coverage Protects Against

Vendors coverage primarily addresses instances of bodily injury or property damage resulting directly from a defective product. For example, if a faulty appliance sold by a retailer causes a fire in a customer’s home, this coverage can help address the resulting property damage and injuries.

The coverage applies when the product itself causes harm, distinguishing it from a vendor’s general business liability, which covers operational risks like a customer slipping in a store. Vendors coverage focuses on risks associated with the product’s design, manufacturing, or instructions. It provides a financial safeguard against lawsuits, medical expenses, and legal fees from such product-related incidents.

Common scenarios include claims alleging injury due to a manufacturing error, an inherently unsafe design, or insufficient warnings or inaccurate instructions. The coverage protects the vendor from financial losses and the burden of legal defense when named in a lawsuit alongside the manufacturer.

However, this coverage has specific exclusions. It does not cover claims from express warranties made by the vendor without manufacturer authorization. If the vendor alters the product, fails to maintain it properly, or does not perform agreed-upon inspections or servicing, the coverage may be voided. Claims related to a product being relabeled by the vendor or used as a component in another product also fall outside its scope.

Obtaining Vendors Coverage

Vendors coverage is not purchased directly by the vendor but is provided by the product manufacturer. Manufacturers secure this protection by adding an endorsement to their commercial general liability insurance policy. This endorsement extends product liability coverage to the vendors who distribute or sell their goods. This is a common practice, often required by major retailers and wholesalers as a condition for doing business.

The mechanism involves listing the vendor as an “additional insured” on the manufacturer’s policy. This status means the vendor gains coverage benefits under the manufacturer’s policy for claims related to the manufacturer’s products. An “additional insured” endorsement extends a portion of the manufacturer’s liability coverage to the vendor, without the vendor needing to purchase a separate policy for that specific product liability.

Manufacturers often offer this endorsement to encourage wider product distribution and fulfill contractual requirements. The cost for adding a vendor’s endorsement to a general liability policy varies but is generally a modest addition for the manufacturer.

Vendors can confirm the coverage by requesting a Certificate of Insurance (COI) from the manufacturer. This document provides evidence and a summary of the insurance policy, outlining policy limits, effective dates, and listing any additional insureds. Reviewing the COI helps ensure specific risks associated with selling the manufacturer’s products are adequately addressed, providing assurance regarding liability exposure.