Product Liability: Are You Covered?

When it comes to product liability insurance for your spa, there can be many questions. Should you have product liability insurance if you own a spa and sell products to clients? Are you legally exposed if your client has an adverse reaction to a treatment, is injured while at your spa, or believes that you failed to warn her about a product you sold that might have ingredients or packaging that could cause harm?

The answers to these questions depend on many factors, including the location of your business, whether you can prove you followed a manufacturer’s instructions, the quality of the relationship you have with your clients, and where you fall in the supply chain. Knowing these answers can help you when potentially difficult situations come up down the road.

Chain of command

It’s best to start by understanding the supply chain. The Food and Drug Administration (FDA) and the United States legal system have, throughout the years, legally identified what constitutes a manufacturer, a supplier and a seller, or, in other words, the major players in the supply chain.

A manufacturer is any company that produces a product,” says Carl Geffken of Geffken Consultants and chairman of the Technical Regulatory Committee for the Independent Cosmetic Manufacturers and Distributors Association (ICMAD). “A cosmetic manufacturer is one that has the equipment and expertise to physically blend raw materials resulting in products that can be used on the body,” explains Geffken.

Dermalogica is one example of this type of manufacturer. It owns the facilities to physically produce the brands it sells in the professional spa market. When Dermalogica sells a brand direct to your business, Dermalogica is the manufacturer and the supplier. If Dermalogica sells its goods through a distributor, who then in turns sells to you, Dermalogica is the manufacturer, while the company you buy from is the supplier, and you are the seller.

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.

If you are only a seller in the supply chain or purchase private label products without changing the formula in any way, the protection under your business insurance should be adequate. However, you should always review this with your carrier in order to be sure.

If you want greater protection or are buying contract-manufactured products, separate insurance is necessary. The common industry practice calls for liability insurance of $1 million per incident. Cost for this type of insurance will vary depending on the location of your business, the uniqueness of your product formula and the category of products you are selling. For example, a cleansing cream will be less expensive to insure than a product with hydroquinone.

Knowing the law

The second factor influencing your level of legal exposure is the location of your business.

In the United States, the claims most commonly associated with product liability are negligence, strict liability, breach of warranty and various consumer protection claims,” reports Sharon Blinkoff, attorney at law. Blinkoff serves on the board for ICMAD and has been practicing law in the professional beauty industry for 30 years.

While the FDA has very specific guidelines for labeling products that must be followed nationwide, the majority of product liability laws are determined at the state level and vary widely from state to state,” explains Blinkoff.

If you are creating your own brand, you can learn about your legal requirements as a manufacturer and distributor through organizations such as ICMAD. These associations also can assist you in keeping up with ever-changing state laws.

Serving your clients

Finally, the relationship you have with your client can influence your level of exposure. If a client perceives there is a design defect, manufacturing defect or that your product packaging failed to warn them of potential danger in using the product or the packaging that contains the product, she can file a legal claim to recover financial compensation.

The California Safe Cosmetics Act is legislation recently passed that will impose additional obligations for safety,” says Blinkoff. “California also has Proposition 65, which requires products that contain listed chemicals to bear a warning regarding the product being a possible carcinogen or reproductive toxicant. Failure to include the required warning can impose liability on all parties in the supply chain. The fines can be significant—in excess of $2,500 per day.

Unlike a typical negligence product liability case that requires proof of the elements, a Proposition 65 violation creates absolute liability. Product liability cases generally require proof of the following to establish liability—that you: one, had a duty to warn the client; two, you breached that duty; three, there was a resulting injury; and four, that the breach caused the injury.

And California isn’t the only state moving in this direction. “Illinois, Oregon and Washington have introduced bills somewhat mirroring what California has passed into legislation, and I understand other states are considering similar action,” reports Geffken.

Be prepared

Having now received this sobering information, don’t let it scare you away from exploring the value of developing your own brand of products. Instead, build a plan to protect your clients and your business. Your first line of defense is to be informed. Ask the other vendors in your supply chain if they have product liability insurance. Keep your staff well-trained on products used in services and make sure manufacturers’ instructions are understood and followed. If you are a manufacturer, be informed on how your product is made and handled from the time it is created until it reaches your clients.

Next, build trust with your clients so they feel loyal to you. You can develop loyalty with clients by establishing programs that provide regular feedback from them. This way you can hear about any less-than-satisfactory experiences before they fester into immense problems. Create a plan to conduct regular surveys and, when possible, talk to every client who comes into the spa. If this isn’t possible, create a position for an employee in your business that has this responsibility along with the skills needed to draw out clients’ feelings and impressions of your spa’s service, staff and products. One of the best ways to build loyalty for your business is to engage clients in special events where they can interact with more than one member of your staff.

Finally, know what to do if you are named in a product liability claim. Begin by engaging your staff. Gather and write down all the facts about an incident before you speak to anyone outside of your business about it. Contact your attorney when you have all the details in order to review the claim and the information you have gathered. If you don’t have an attorney, build a relationship with one before you need it so you know who to call when a potential problem arises. Contact your product liability insurance carrier after you and your attorney have assessed the claim. Then together, and with the knowledge from your staff and the advice of your attorney and insurance provider, create a plan and follow it. The best defense is always a strong offense.

Insurance Ideas

The following is a listing of some of the insurance companies that handle business for the beauty, spa and skin care industries.

    Aon Affinity Commercial Services in Hatboro, Pennsylvania; 877-738-6993
    Alternative Balance—Salon & Spa Association in Hillsboro, New Hampshire; 800-915-6618 or 603-529-7823, [email protected]
    Associated Bodywork and Massage Professionals (ABMP) and Associated Skin Care Professionals (ASCP) in Evergreen, Colorado; 800-458-2267,[email protected] or 800-789-0411, [email protected]
    Brownyard Group, Hairdressers Agency, in Bay Shore, New York; 800-645-5820
    Frenkel & Co., Inc., Cosmetic Insurance Services (CIS), in Jersey City, New Jersey; 800-373-6535 or 201-356-0057, [email protected]
    Marine Agency Corporation in Maplewood, New Jersey; 800-763-4775 or  973-763-4711, [email protected]
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