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Product Liability Insurance
Product Liability Insurance shields businesses from financial consequences of claims related to damage or injury caused by their products.
What is Product Liability Insurance?
Product Liability Insurance covers a spectrum of risks that your products might
encounter. These could range from manufacturing defects, design flaws, or
inadequate warning labels to misuse by consumers. If someone files a claim
against your business because of an issue with your product then this policy can
cover legal defense costs, settlements, and court judgments.
Without product liability insurance, one significant claim could mean the end of
the business you've worked so hard to build.
Features of Product Liability Insurance :
Works on Claims
Claims need to be initiated within the policy period. The incident triggering the claim must also happen within the policy’s coverage duration.
Retroactive Date
Policyholders' initial policy start date remains consistent for all renewals, enabling claims for incidents post-commencement, contingent on continuous coverage.
Insurance Period
The insurance period spans from the retroactive date to the policy's termination date, providing coverage during this entire timeframe.
Who needs Product Liability Insurance?
Businesses involved in manufacturing or selling goods, as well as distributors,
importers, retailers, and others interacting with products, require product liability
insurance.
Clients may also need this policy to safeguard against design flaws and other
risks associated with the product.
This insurance protects your business from claims or lawsuits resulting from
bodily harm or property damage caused to any third party by defective items that
your business has manufactured, distributed, or sold.
Product Liability Insurance is necessary for various kinds of businesses :
- Manufacturers
- Distributors
- Retailers
- Online sellers
- Pet supply shops
- Restaurants, cloud kitchens
- Print shops
Why get Product Liability Insurance?
Introduction of Consumer Protection Act 2019 has brought significant changes to
the product liability landscape in India.It includes a dedicated chapter dealing with product liability, expanding the scope
of liability across the supply chain to include manufacturers, product sellers, and
product service providers.
This means businesses at various points in the supply chain could face liability claims, making product liability insurance all the more critical. Even with the utmost dedication and care put into crafting your products, they may still fall short of customer expectations. You need product liability insurance because, in case of a lawsuit, it covers legal defense costs and potential damages. Plus, it aids in covering repair or replacement expenses for defective products—even if you aren’t sued. There can be design flaws, product defects, poor instructions, labels, or warnings that cause physical harm or damage to the user.
This means businesses at various points in the supply chain could face liability claims, making product liability insurance all the more critical. Even with the utmost dedication and care put into crafting your products, they may still fall short of customer expectations. You need product liability insurance because, in case of a lawsuit, it covers legal defense costs and potential damages. Plus, it aids in covering repair or replacement expenses for defective products—even if you aren’t sued. There can be design flaws, product defects, poor instructions, labels, or warnings that cause physical harm or damage to the user.
Scope of coverage under product liability insurance
Incidents covered
The policy provides coverage for accidents, injuries, and damages resulting from the use of the product.
Potential product issues
Coverage may include manufacturing defects, improper packaging, usage instructions, and delivery specifications.
Domestic and export sales
Certain policies offer protection for both domestic sales and exports by the insured company.
Claim notification
To initiate the claim process, claims must be submitted to the insurer as soon as possible.
Coverages
This insurance protects your business from claims or lawsuits resulting from bodily harm or property damage caused by defective items that your business has manufactured, distributed, or sold. A product liability insurance policy addresses claims due to:
Product injury
This covers attorney fees and court-ordered settlements for design, manufacturing, warning, or use flaws, and injuries from proper product use.
Domestic and export sales
Certain policies offer protection for both domestic sales
and exports by the insured company.
Claim notification
To initiate the claim process, claims must be submitted to
the insurer as soon as possible.
Product-related illness
It covers illnesses caused by products sold or manufactured by your business,
such as expired food or allergy-inducing beauty products.
Products causing wrongful death
It addresses lawsuits, burial expenses, and other costs associated with customer
death resulting from your product.
Legal representation costs
These include defense costs for providing documentation or information to
investigators concerning product-related faults.
Exclusions
Product guarantees
Insurance coverage will be inapplicable if the policy holder makes explicit warranties or guarantees to customers concerning the performance or quality of the products being sold.
Repairing/Refurbishing costs
In the event that the insured's product causes harm or damages someone's
property as a result of its defect, the insurance policy may cover the costs of
compensating the affected party.
Financial losses from loss of market share/goodwill
This exclusion applies to losses from decreased market share or loss of goodwill due to harm caused by the insured's product. Such losses are typically not covered as they're considered consequential rather than direct damages from the defective product.
Technology product claims
This policy excludes coverage for certain types of losses that may arise from
technology products. It may apply to losses resulting from claims of intellectual
property infringement, failure of technology products to meet performance
specifications, or failure to perform as in tended.
Employee injuries sustained while manufacturing the product
Employees manufacturing the product aren't covered under this policy. This exclusion exists because such injuries are usually covered by a separate workers' compensation insurance policy.
Willful manufacturing/distributing of defective/dangerous products
If an insured engages in any willful or intentional misconduct, the insurance
policy will not provide coverage or any resulting losses, including those that arise
from claims of bodily injury, property damage, or other harm caused by the
defective or dangerous product.
About Product Liability Insurance
What is the jurisdiction and territory of coverage in product liability insurance?
Jurisdiction refers to the countries where the policy will cover claims filed in
courts, while territory refers to the location where the incident causing the claim
occurred.
Are product recall costs covered under product liability insurance?
Some policies may provide full coverage for product recall costs, while others
may have specific limits or exclusions. Coverage typically includes reasonable
costs incurred for recall, recovery, disposal, or withdrawal, as well as customer
notification costs.
What are the most common types of product liability cases?
Design defects, manufacturing defects, failure to warn consumers of potential
dangers, marketing defects, and improper installation or assembly are the most
common types of product liability cases.
How can a business reduce the risk of product liability claims?
To minimize risk, businesses should implement effective equality control
programs, conduct thorough product testing, ensure proper labeling, comply with
regulations and safety standards, obtain product liability insurance, and engage
in post-sale monitoring.
Can a retailer be sued for product liability?
Yes, retailers can be held liable for selling defective products or products posing
unreasonable dangers, even if they did not manufacture or design the product.
Can you be sued for reselling products?
Resellers can be held liable for product defects if they knew or should have
known of the defect or danger associated with the product, yet still sold it. This is
known as 'strict liability.'
What are the essential elements of a product liability lawsuit?
A product liability case generally requires proving the existence of a defect,
causation and damages (the defect caused injury or harm), and intended use
(the consumer used the product as intended by the manufacturer).
What are five common product defects covered by product liability insurance?
Design defects, manufacturing defects, failure to warn consumers of potential
dangers, marketing defects, and packaging defects are common product defects
covered by product liability insurance.
What are typical software product liability claims?
Common software product liability claims involve design defects (flawed design
causing harm), manufacturing defects (improper development leading to an on
conforming product), and failure to warn (inadequate warning of known or
foreseeable risks).
Who can be held liable in a product liability case?
Manufacturers, retailers, distributors, suppliers, contractors, subcontractors,
advertisers, and marketers can all potentially be held liable in a product liability
case.
How do you calculate the liability for a product warranty?
Calculating warranty liability depends on warranty terms, product cost, and the
number of claims filed. Methods used include the expense warranty method,
accrual warranty method, and warranty reserve method.
Are there any limits to product liability?
Limits on product liability include statutes of limitations, statutes of repose,
contributory negligence, assumption of risk, and limitations on damages.
What are the four elements required to prove negligence in a product liability action?
To establish negligence, a plaintiff must prove duty (the defendant's responsibility
to provide a safe product), breach (failure to provide a safe product), causation
(the breach caused the plaintiff's injuries), and damages (the plaintiff suffered
harm due to the breach).
In a product liability claim, who is held liable - the manufacturer or the seller?
Manufacturers are typically held to a higher standard of care, as they design,
test, and produce products. However, distributors and sellers also have a
responsibility to ensure the products they sell are safe and free from defects. The
specific liability depends on case facts.
