Product Liability

Product Liability Insurance

What is  a Product Liability?

According to the Insurance Risk Management Institution‘s definition, product liability is the liability for bodily injury or property damage incurred by a merchant or manufacturer as a consequence of some defect in the product sold or manufactured.  However, this definition has been stretched to include intangibles, naturals, real estate and writings.  Product liability claims can also be based on negligence, strict liability, or breach of warranty of fitness depending on the jurisdiction of where a claim is based.

What kind of events can trigger a Product Liability Claim?

In 1979, the Department of Commerce through its Task Force on Product Liability and Accident Compensation, issued the Model Uniform Product Liability Act (MUPLA).  The objective of the MUPLA was to resolve problem areas which have developed in the field of; liability insurance rate-making procedures, unsafe manufacturing practices, and uncertainties in the tort-litigation system.  In order for there to be a legitimate claim, it must be proved that the product in question is defective by either design defects, manufacturing defects or defects in marketing. PL  is generally regulated by each state and is based on strict liability, there is no federal law.

Do you really need Product Liability Insurance?

“I’m just a distributor.  I shouldn’t have to pay much for my insurance.”  Not so fast!  You’re probably much more than a distributor.  To find out, take this quiz:

  • Do you import your product?
  • Do you have your product made to your specifications?
  • Is the product your name brand product?
  • Did you create the instructions or warnings for your products?
If you answered “yes” to any of these questions, you are more than a distributor in the eyes of the law and your insurance carrier.

If you are an importer, you are seen as the manufacturer in the U.S. because it is deemed too expensive and complicated to pursue claims against foreign manufacturers.  If you bring foreign products into the U.S. market, the burden of safety belong to you.

If you have a product built to your specifications, then design defect claims belong to you.

If you designed the product, you are probably responsible for the content of the instructions and warnings, and any instruction/warning claims belong to you.

If the product is your name brand product, many state laws require that you have the name of the manufacturer clearly printed on the product label. 

If it is not clear, then you will be treated as the manufacturer of the product.

What does Product Liability Insurance Cover?

Product liability insurance provides protection against financial loss arising out of the legal liability incurred by an insured because of injury or damage resulting from the use of a covered product or out of the liability incurred by a contractor after a job is completed. This liability is usually included and forms a part of a Commercial General Liability insurance policy. However, certain classes of business are considered to be higher hazards for product liability, the exposures associated with these types of risks tend to require specialized insurance underwriting, and therefore a stand-alone products/completed operations policy may be required.  Examples of classes of businesses that may require a stand-alone products/completed operations policy are:
  • Medical Technology Companies
  • Medical Device Manufacturers
  • Life Sciences Companies
  • Process/Control Design Manufacturers

Specialty insurance carriers design coverage forms specifically tailored to these industries.  Some of the additional coverages that are included in a stand-alone products/completed operation policy are:

  • Worldwide Coverage
  • Vendors Additional Insured Coverage
  • Scientific Advisory Boards
  • Sales Representatives
  • Clinical Trails
  • Clinical Research Organizations
  • Clinical Research Coordinators, Monitors or Investigators
  • Investigational Review Boards or Medical Ethics Committees
  • Independent Engineers or Consultants
  • Medical Staff Members
  • Professional Services
  • Known or Foreseeable Side Effects.
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