Product Liability Insurance

 

                                 

Manufacturing of a product requires a lot of planning and research. Once the product has left the manufacturer’s premises after due certification processes, the goods are ready for sale and use.

After this, the target customer has to be identified and the product must be suitably marketed for better sales and profits.

If we take the example of products like medicines, consumables, perishables, it is the consumers that will make the product a success. However, if there is a defect in the product it affects the consumers which in insurance parlance are the third parties.

Consumers can claim damages for death, bodily injury in these cases and such claims need the services of defense counsels to defend the litigation cases. Such claims can be huge and usually the courts take a sympathetic view and rule in favor of the victim. In such a scenario product liability insurance can come to the rescue of insurers.

 In case a customer suffers injury or damage to his person or property due to the use of a product, the customer can sue the manufacturer for defect in product and claim damages. The manufacturer is liable to compensate for the death, injury damage to property, of the customer. To protect this liability, product liability insurance is required for the manufacturer.

Product liability insurance covers the liability risk of compensating a customer who is injured by a faulty product that is manufactured by the policyholder.

The product liability insurance policy provides cover for liabilities arising out of death, injury or property damages to the user of the product and defense costs in defending the case.

Highlights of the policy

This policy covers all sums (inclusive of defense costs) which the insured becomes legally liable to pay as damages as a consequence of:

1. Accidental death/ bodily injury or disease to any third party.
2. Accidental damage to property belonging to a third party.

Arising out of any defect in the product manufactured by the insured and specifically after such product has left the insured's premises.

Some liabilities emerge after expiry of the policy, to protect the interest of the consumer retroactive period facility is given in the policy. Claims that arise in the previous policy period become payable due to this retroactive date clause.

Retroactive Period Benefit is to enable the policyholder to compensate claims that arise in the previous policy year if policy is renewed without break in cover.

 Retroactive date policy provides coverage if an incident occurs on or after a specified date.

Example:

Retroactive date: 12.12.2020 i.e.  first policy inception date

Renewed policy period:  12.12.2021 to 11.12.2022

Period of insurance: will be from 12.12.2020 to 11.12.2022

 Hence there is continuous coverage, provided the policy is renewed without break. Any claim during the period of insurance is admitted i.e.  all claims which could not be reported immediately or discovered can be claimed and insurer is on cover for the period.

Policy must continuously be renewed without break to avail this retroactive date facility.

Claims can arise due to:

·       Manufacturing defect

·       Faulty packaging

The policy is on a claim made basis i.e. the claims must arise and be made in writing to the insurance company during the policy period.

Who can take the policy?

The policy can be taken by the manufacturer of any product whether it be the finished product or part of the finished product.

Selection of sum insured

Sum insured is selected based on the nature of the product, the approximate number of people that may be affected by such product, the maximum property damage in the event of a mishap.

Evaluation of the extent of loss must be made based on past record and claims experience and suitable sum insured must be chosen with AOA: AOY limits.

The sum insured is called as the limit of indemnity. This limit is fixed per accident and per policy period which is called any one accident (AOA) limit and any one-year (AOY) limit respectively. the ratio of AOA limit to AOY limit can be chosen as per the set below:

1. 1:1
2. 1:2
3. 1:3
4. 1:4

The AOA limit is the maximum amount payable for each accident. AOY is the sum insured limit for all accidents in a year.

Careful analysis will enable the insured to arrive at the right amount of sum insured.

Add Ons:

·        Technical Collaborators Extension

·        Third Party Manufacturers Extension

·        Vendors Liability Extension.

 

Technical Collaborators Extension: This provides liability cover for the errors/defects due to the technical collaborator.

Third Party Manufacturers Extension: Sometimes a part of the manufacturing is done by another manufacturer and defects from that end can lead to liabilities. This extension covers such liability.

Vendors Liability for named or unnamed vendors: Vendors liability means liability arising out of the sale and distribution of named insured products by vendors with original warranties and instructions of use of the product specified by the manufacturers.

 

Product Liability insurance is a comprehensive cover for the liabilities that arise in course of business. Product insurance policy serves as a significant tool as it minimizes the liability of the policyholder due to defect in a product and also pays the defense costs for defending the claim.

We at Zen Insurance have the right expertise and can assist you in customizing a suitable policy that covers your liability. Plan your insurance cover and contact us for assistance.

 Disclaimer:   

Zen Insurance Brokers is an IRDAI registered broker which facilitates quick & accurate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.