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Product Liability: Are You Covered?

By Patty Schmucker
Posted: May 23, 2008, from the July 2007 issue of Skin Inc. magazine.

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If a client files a complaint or pursues legal action, she can, as often happens, name all parties in the supply chain in an effort to recover financial compensation. In this case, you may well be named if you sold the product or used the product in a service provided to the client. If you use a product in a service, however, the best way to limit or avoid liability altogether is to make sure you always use products in accordance with the manufacturer’s instructions.

Contract manufacturing

In the market today, a growing number of spas are discovering the opportunities afforded by owning and controlling their own brand of product. They are engaging the services of another type of manufacturer common in the beauty industry, the contract manufacturer. When spa owners engage a contract manufacturer they can: one, alter one or more ingredient in a formula owned by the contract manufacturer; two, provide or help create an original formula; and three, put their brand name on products owned and manufactured by the contract manufacturer. When spas engage a contract manufacturer in any of the previously described scenarios, the spas themselves become a product manufacturer and assume some level of product liability risk.

Simply put, if spa owners produce a product by adjusting any ingredients in the container or by placing their brand name on the packaging, such as a private label, the spa assumes some level of product liability for the product. “When the FDA receives a claim, it will first make contact with the company that owns the brand name,” says Geffken.

Protecting your spa

Product liability insurance should be part of your strategy to protect your business in the unfortunate event that your client is negatively affected. In addition to having insurance, try to limit your liability by contract. Have your contract manufacturer agree to indemnify you in the event of a problem with a product that it produces on your behalf.

The good news is that many business liability insurers for the industry also offer some form of product liability. Contacting your insurance broker is the best way to determine what is included in your existing coverage. If you are a booth renter or own a spa and rent to booth renters, these workers become part of the supply chain and have the same responsibility and financial exposure in the event of a client problem. Again, many insurance companies in the beauty and skin care industry have products for booth renters.