November 26, 2021

Product Liability Insurance

Product Liability Insurance

From toothbrushes to kitchen appliances, we all use multiple products in our daily lives. And most of these products, especially medicines, food and beverages, electronic gadgets, toys, etc. go through stringent quality control measures in order to ensure the public's safety.

However, despite these measures, some products may still possess certain defects that can cause adverse reactions or bodily injury to the consumers. Under such circumstances, the company/manufacturer/seller becomes liable for the harm caused to its customers.

This is where Product Liability Insurance comes in. It helps businesses, manufacturing concerns, pharmaceutical firms, and any other product focused organization to manage legal liabilities related to their products.

Product Liability Insurance indemnifies the insured business against their legal liability to pay compensation in the event of third party claims arising out of unexpected harm or damage due to defects in the insured’s products.

This insurance policy covers the following incidents and expenses that are caused due to defects in products manufactured or supplied by the insured during the policy period :

  • Death, bodily injury, illness, or disease to any person
  • Physical damage to tangible property
  • Pollution or contamination of the atmosphere or of any water, land or other tangible property
  • All costs, fees and expenses borne out of defence or settlement of any claim made against the insured, including the cost of representation, provided these expenses are incurred with the insurance company’s prior consent in the investigation

Other characteristics of this policy are :

  • The defect in the product may be a manufacturing defect, faulty packaging, or faulty delivery specifications or instructions as to use of the product
  • The term ‘product’ in this policy refers to any tangible property after it has left the custody or control of the insured, and which has been designed, specified, formulated, manufactured, constructed, installed, sold, supplied, distributed, treated, serviced, altered or repaired by or on behalf of the insured
  • This policy is often issued on a claims made basis, which means that the accident giving rise to the claim should have occurred during the period of insurance and further, the initial claim should be made against the insured during the policy period
  • The policy offers the benefit of retroactive period on continuous renewal of policy whereby claims reported in subsequent renewal but pertaining to earlier period after first inception of policy also become admissible.

On payment of additional premium, this policy can also cover the following extensions :

  • Vendor’s Liability Extension - this cover extends liability coverage to the end retailers/sellers/distributors of the product found to be or alleged to be defective
  • Technical Collaborator Extension - this cover extends liability coverage to technical collaborators, who supply processes and provide technical support, in the event of accidents arising from defective designs or processes supplied by them
  • Product Recalls - this cover extends coverage to all costs borne by the insured business in recalling products that have been found to have a defect and have resulted in injury or property damage to the public

A Product Liability Insurance policy comes with the following specific exclusions :

  • Costs incurred in the repair, reconditioning, modification or replacement of any part of any product which is or is alleged to be defective. However, this cover can be opted for as an endorsement under the Product Recall extension
  • Costs arising out of the recall of any product or a part thereof, unless the add-on cover for this has been opted for
  • Deliberate, wilful or intentional non-compliance of any statutory provision
  • Products intended for incorporation in the structure, machinery or control of an aircraft
  • Fines, penalties, punitive and/or exemplary damages
  • Damage to property belonging to the insured or held in trust or in custody or control of the insured or of a person in the service of the insured
  • Products which left the control and custody of the insured prior to period of insurance
  • Professional Liability
  • Injury to any person under the contract or employment or apprenticeship with the insured
  • Claims for failure of the goods or products to fulfill the purpose for which they were intended

General exclusions :

  • Ionizing radiations, contamination by radioactivity, and other nuclear perils
  • War and related perils
  • Any contractual liability
  • Pure financial loss, such as loss of goodwill, loss of market, etc.

It is imperative for manufacturers, suppliers, distributors and retailers to purchase a Product Liability Insurance policy. Certain businesses like pharmaceutical firms, vehicle manufacturers, tech companies, food and beverage companies, etc. need to have this kind of insurance in order to manage their legal liability and ensure the payment of due compensation to claimants.

What other kinds of Liability Insurance policies can businesses purchase? Find out here

Opinions, conclusions and statements of intent expressed in this article are that of the author and Verak does not accept liability for the views expressed unless confirmed by an authorized representative of the Company independently of this communication.