Typical Manufacturer Expenses Relating to Product Liability Coverage

Product liability coverage is intended to provide a financial safeguard for manufacturers and importers as well as for other vendors along the supply chain. Such policies protect against damage claims resulting from accidental property damage or bodily harm done by a product itself or a service that has been performed.

This type of coverage does not, however, protect against damage that is the result of intentional acts of a vendor or manufacturer or events that were foreseeable by insured parties.

It is also important to note that this type of coverage does not extend protection when it comes to liability for damages that are already under the umbrella of another contractor for which the vendor or manufacturer bears responsibility via disability statutes, unemployment compensation obligations or worker’s compensation law.

There are those who are of the opinion that expenses resulting from the purchase of products liability insurance ought to be an excludable cost because such coverage works to protect customers who might otherwise be held liable for damages caused due to how the manufacturers’ products are used.

Such manufacturers routinely argue that without such insurance coverage, customers would refuse to purchase their products. Thus, manufacturers contend that product liability coverage should properly be viewed as a delivery cost, given that it is essentially a prerequisite for any sales to occur.

The fact remains; however, that because costs pertaining to the transport of goods along the supply chain from maker to vendor are not considered to be directly related to the delivery of goods to the end customer in the sales transaction, they are not rightly excludable from the sales price for tax calculation purposes.

This type of insurance is typically bought by manufacturers in advance of the goods being shipped from a factory for eventual receipt by customers.

Just because customers are generally unwilling to accept things such as firearms or other potentially dangerous items in the absence of a product liability policy, that does not mean that the cost of such coverage should be seen as an excludable expense related to the act of delivery itself.

The bottom line is that product liability coverage is something that exists to protect the manufacturer of a product as well as vendors down the line of distribution. The expense itself is not one that arises directly from the act of delivery to customers.

For that reason, the cost of a product liability insurance policy is designated as an expense that pertains to manufacturing and/or sales, and is, therefore, not to be removed from the final price of shells, cartridges or firearms themselves.