Products LIability Insurance

A products liability insurance covers legal liability for   bodily injury or property damage happening during the period of insurance which arises out of goods or products manufactured, constructed, altered, repaired serviced, treated, sold, supplied or distributed by the insured

 One can incur such liability at common law in negligence or in contract under the Sale of Goods Act or Consumer Protection Act 2012. The latter is an Act of parliament to provide for protection of consumers and prevent unfair trade practices in consumer transaction. Negligence will arise in careless manufacture of an item or in its packaging, distribution or storing. Liability will be to all persons who are likely to sustain injury or damage to their property.

The liability covered has to be accidental or fortuitous and will include incorrect labelling, selling the wrong good such as paraffin instead of petrol, or supply of wrong chemical by pharmaceutical company.

A products’ liability policy is offered on either’’ occurrence or claims made basis’’ some insurers takes the claim made basis to be more appropriate method of this form of insurance. The limit of liability is a yearly aggregate limit which applies to compensation payable and claimant’s costs and expenses. The cover extends to provide for the cost of defending the claim and the cost of representation of the insured.

How Cover is Provided.

In most cases, insurers will only provide this cover if they are also proving for public liability policy in which case the product liability exclusion in the public liability policy will be deleted.

A separate policy can be issued or combined liability policy with two separate sections (one providing public liability cover) and the other products’ liability cover may be issued.

Some situations in which cover can be provided are;

Electrical Appliances

The use of defective materials or incorrect assembly of electric materials such as kettles, cookers and other similar appliances can result in claims of personal injury or death or fire damage to property.

Concrete Product Manufacturers

Load bearing beams for example if defectively constructed would result in the collapse of building.

Pharmaceutical Products

Among the risks here is selling a chemical with serious side effects or prescribing the wrong medicine

Food Manufactures

Selling a contaminated foodstuff could affect thousands of individuals resulting in a potential heavy liability.

Weed Killers and Fertilizers

These can harm crops if not applied properly and can cause injury if they spread or are handled carelessly.

Tools and Machinery.

Faulty manufacture or use of defective materials can cause bodily injury to users and damage to property.

Cosmetics

These may be dyes, tints or hand and body lotions. The manufacturer may be liable if the products contain harmful ingredients or if proper instructions are not issued for the use of the product and injury or sickness occurs

Fireworks

Errors in the preparation or labelling of fireworks can have serious consequences for the users if their use result in outbreak of fire.

Tyres

 New tires may have been defectively manufactured resulting in in sudden bursting or serious motor vehicle accident

Policy Extensions

• Jurisdiction clause – this states that actions for damages must be brought in the courts where the policy is issued. Some insurers will provide full worldwide cover subject to the payment of additional premium.
• Faulty design, plans formula or specification of goods – insurers regard this as a trade risk, loss from which should be borne by the insured. This is because this mounts to providing guarantee for the performance of a product which is the area of product liability insurance.
• All professional risks should be insured under the professional indemnity policy.
• Liability in respect of replacement of or loss or damage to goods sold or supplied
• The cost of renovating, repairing, replacing or recalling unsuitable or defective goods is not covered
• Liability assumed under agreement unless such liability would have attached notwithstanding such agreement.
• Damage to property belonging to or held in trust by or in custody or control of the insured
• Injury to employees of the insured
• The general exclusions of radio activity, nuclear explosion war and its allied risks

Products’ Guarantee Insurance

Products’ guarantee insurance is a logical progression of the product liability insurance. The object of the policy is to indemnify the insured against the cost of repairing or replacement of defective products. This policy is concerned with covering the insured against their legal liability arising out of their failure of the product to fulfil their intended purposes.

The Risks

The failure of the product to meet the performance requirement of the specification or to fulfil their intended function is now as efficacy risk. Example, a new transformer may fail to perform or a burglar intruder alarm may fail to operate. The policy protects the insured’s responsibilities that arise out of a contractual relationship. If the product is supplied to the buyer, the buyer expects it to work. Where it does not work, the buyer may sue the seller for any financial loss incurred.

The Cover

The policy covers:

• The cost involved in repairing, renovating or replacing unsuitable or defective goods
• Financial losses flowing from such defective goods

Limits of Indemnity

A products’ guarantee insurance is normally issued on claims made basis, that is, the policy applies only to claims made against the insured and notified by the insured during the period of insurance. The insurance will be aggregate for the period of insurance, not any one accident.

Examples of Liability One Can Insure Under the Policy

• The cost of work involved in in replacing the goods
• Loss of use by the customer
• Replacing or repairing defective products
• Loss of trade sustained by a restaurant as result of bad publicity following a prosecution because of supplying snack with a foreign body in it.
• Cost of withdrawing the product and replacing it or recalling it to have the faulty corrected
• Financial losses incurred by the user when goods fail to fulfill the purpose for which they were supplied, without there being no injury or damage.

Product Recall Insurance

In some cases, it is important to extent a product guarantee policy to provide against cost of recalling defective products from consumers who had bought them.