What is product liability insurance, and how does it respond to a claim?
I’ve seen several older posts from members asking about product liability for their company and product line, so I’d like to elaborate on this particular line of coverage.
If you are a manufacturer, distributor, supplier, or retailer, please read this.
Product liability insurance covers businesses against claims for bodily injury or third-party property damage caused by your product.
More often than not, products liability is built into a business’s general liability policy. Unless otherwise excluded, the product liability will have an aggregate limit under “products and completed operations.” This limit is outside, or separate, from your general aggregate limit that covers other claims that are not product related.
In other words, read your policy. Your policy will tell you what is covered, your limit, and most importantly, what is excluded. The devil is in the details of the exclusions. Product liability doesn’t cover claims for defective products or faulty design unless it causes bodily injury or third-party property damage. If the product is defective or faulty in design, you will need to explore a professional liability policy and/or a product recall policy.
There are some industries were a general liability policy will exclude any and all product claims due to the hazard nature of the industry, i.e. aerospace and aviation. These two industries, as an example, will have specialized global insurance markets that offer products liability coverage for different prices, retentions (deductible), and terms.
If your insurance company excludes product liability from your general liability policy or business-owners policy (BOP for small business), then you will have to buy a stand-alone product liability policy. Or in most cases, your client contracts may require higher limits than your “products and completed operations” allows for, and if this happens, you will need a stand-alone product liability policy. (Seek out an insurance broker that specializes in this type of coverage or specializes in your industry.)
It’s paramount that you remember that product liability insurance is not product recall. Product recall is a specialized line of insurance coverage that will be bought separate, and its function is to protect your company when a product(s) poses an imminent threat of bodily injury or property damage to the marketplace. It will cover first-party (you) costs that might include: notification of customers, reputation management, shipping costs, cost to dispose of products, cost of additional expense to withdrawal the product, et al.. It also includes coverage for third-parties (client or vendors) that should have: recall expenses that your clients absorb in order to replace or repair product, business interruption (loss of income), additional cost to purchase and replace substitute products, and much more.
I would like to add one last item. Make sure your contracts that you sign are locked down when it comes to the indemnification clauses. I read contracts non-stop as an insurance broker, and many contracts are weak in this area. Remember you’re allowed to push back on language you don’t like, or you may feel that the assumption of risk in the contract is too great for your company. Your first line of defense when transferring risk is in your contracts.
Please seek out attorneys and insurance brokers that understand your industry and the risks that your business is exposed to.
I’ve seen several older posts from members asking about product liability for their company and product line, so I’d like to elaborate on this particular line of coverage.
If you are a manufacturer, distributor, supplier, or retailer, please read this.
Product liability insurance covers businesses against claims for bodily injury or third-party property damage caused by your product.
More often than not, products liability is built into a business’s general liability policy. Unless otherwise excluded, the product liability will have an aggregate limit under “products and completed operations.” This limit is outside, or separate, from your general aggregate limit that covers other claims that are not product related.
In other words, read your policy. Your policy will tell you what is covered, your limit, and most importantly, what is excluded. The devil is in the details of the exclusions. Product liability doesn’t cover claims for defective products or faulty design unless it causes bodily injury or third-party property damage. If the product is defective or faulty in design, you will need to explore a professional liability policy and/or a product recall policy.
There are some industries were a general liability policy will exclude any and all product claims due to the hazard nature of the industry, i.e. aerospace and aviation. These two industries, as an example, will have specialized global insurance markets that offer products liability coverage for different prices, retentions (deductible), and terms.
If your insurance company excludes product liability from your general liability policy or business-owners policy (BOP for small business), then you will have to buy a stand-alone product liability policy. Or in most cases, your client contracts may require higher limits than your “products and completed operations” allows for, and if this happens, you will need a stand-alone product liability policy. (Seek out an insurance broker that specializes in this type of coverage or specializes in your industry.)
It’s paramount that you remember that product liability insurance is not product recall. Product recall is a specialized line of insurance coverage that will be bought separate, and its function is to protect your company when a product(s) poses an imminent threat of bodily injury or property damage to the marketplace. It will cover first-party (you) costs that might include: notification of customers, reputation management, shipping costs, cost to dispose of products, cost of additional expense to withdrawal the product, et al.. It also includes coverage for third-parties (client or vendors) that should have: recall expenses that your clients absorb in order to replace or repair product, business interruption (loss of income), additional cost to purchase and replace substitute products, and much more.
I would like to add one last item. Make sure your contracts that you sign are locked down when it comes to the indemnification clauses. I read contracts non-stop as an insurance broker, and many contracts are weak in this area. Remember you’re allowed to push back on language you don’t like, or you may feel that the assumption of risk in the contract is too great for your company. Your first line of defense when transferring risk is in your contracts.
Please seek out attorneys and insurance brokers that understand your industry and the risks that your business is exposed to.
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