Product Liability Insurance is a Business Insurance policy that provides coverage for third party claims of injury, death, illness, or damage caused by a business's products.
From toothbrushes to kitchen appliances, we all use multiple products in our daily lives. And most of these products, especially medicines, electronic gadgets, toys, food and beverages 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 organisation to manage legal liabilities related to their products.
Product Liability Insurance indemnifies a business against its legal liability to pay compensation in the event of third party claims arising out of unexpected harm or damage due to defects in the business's products.
Instances of a medicine causing adverse problems to the consumer, an electronic gadget malfunctioning and causing physical harm, a vehicle air-bag failing to deploy, can all be covered under a Product Liability Insurance policy.
This policy broadly covers the following incidents and expenses that may arise out of product related accidents during the policy period :
- Death, bodily injury, illness, or disease to any person
- Physical damage to customer's tangible property
- Pollution or contamination of the atmosphere or of any water, land or other tangible property
- All costs, fees and expenses incurred during defence or settlement of any claim made against the business. This includes the cost of representation, court fees, and compensation paid to the claimant, provided these expenses are incurred with the insurance company’s prior consent
Businesses opting for Product Liability Insurance must keep in mind certain characteristics of this policy, like:
- 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. Furthermore, 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. This means that claims reported in subsequent renewals that concern an earlier period (but, after the inception of the policy) are also 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 defective product
- 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 a defective product. 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 fulfil 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.
Types of Liability Insurance policies for businesses