Are You Covered? - Performance Brand

Product Liability:
Are You Covered?
By Patty Schmucker
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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.
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.
Chain of command
Contract manufacturing
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
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
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Product liability insurance
should be part of your strategy
to protect your business.
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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
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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,
•
•
•
•
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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]
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
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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
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Your first line of
defense is to be
informed.
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.
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