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product liability insuranceAll businesses that are involved in the supply of a product should hold product liability insurance but what is products liability insurance, what does it cover and what does it cost?

What is product liability insurance?

The product liability insurance policy protects the policyholder against claims made against them in respect of their legal liability for personal injury or property damage arising from the supply of a product.

Who needs product liability insurance?

Anyone engaged in the supply of a product is exposed to the risk of a claims being made against them in connection with the supply of the product. The risks faced by the manufacturer of a product are greater than those faced by any wholesaler or retailer and this will be reflected in the premium you pay for the cover. if a claim occurs as a result of the supply of the product then the responsibility for the loss will pass through the supply chain to the point of origin but if at any point this chain is broken or falters, then the claim can rest with the party that supplied the product. The supply chain can be broker in a number of different ways, liquidation, companies in parts of the world that perhaps are not easily enjoined in the claim.

product-liability-blackfriarsWhat is the limit if indemnity under a product liability insurance policy?

The limit of indemnity is the maximum amount an insurer will pay in respect of a claim under the policy. Common limits are £1M, £2M and £5m but higher limits are generally available.

Is the product liability policy issued any one claim or occurrence or in the aggregate?

The limit of indemnity under a product liability insurance policy is in the aggregate. This means that the limit of indemnity applies as a limit per claim or as a limit of all claims in the policy year. This can be significant to you in deciding the limit you require as the amount of cover under the policy is effectively reduced by the amount of any claim or claims that have occurred in the same policy year.

Is product liability settled on a claims made or claims occurring basis?

The product liability policy is generally issued on a claims occurring basis. This means that the policy responds to claims that occur during the currency of the policy. If the policy has lapsed or has been moved to another insurer at renewal, the policy that was in force at the time the claim occurred will deal with the claim.

Some product liability policies are issued on a claims made basis, this often occurs when a “new” product is brought to market that may appear to present a higher than normal exposure to risk. The claims made policy only responds to claims that are made whilst the policy is in force. If your policy is issued on this basis you should be aware of the potential problems that may arise if you lapse or move the policy to another insurer at renewal.

Are defective products covered by product liability insurance?

The policy provides no cover in respect of the product itself, the cover provided by the policy protects the policyholder in respect of their legal liability for injury or damage arising from the supply of a product. Whilst most claims will arise from the supply of a defective product there is no requirement that a product be defective per se, in fact such a requirement would render any defence of a claim arising from a product that was not defective outside the cover of the policy and this would be against the fundamental intention of the policy.

Does product liability insurance provide cover for replacement of the product?

No this is a specific exclusion under the policy. Again remembering that this is a contract protecting the insured’s legal liability only. It is not a product warranty or guarantee.

Does product liability insurance cover the cost of product recall?

No, product recall is a separate class of insurance and it is not covered under a product liability policy. In certain circumstances and underwriter might consider assisting with a recall in order to prevent further legal liability claims but this would be extremely uncommon.

How do I buy product liability insurance?

Whilst the cover provided by a product liability insurance is a separate and distinct class of insurance it is not generally available as a stand-alone class of insurance. It is generally purchased alongside the public liability insurance either as part of a combined liability insurance product or as part of a package insurance product such as shop or commercial combined.

How much does product liability insurance cost?

As with other classes of insurance the cost of product liability cover is  dependent upon a few key risk factors that allow the insurer to determine the level of risk it faces, these are the type and nature of the product, the limit of indemnity required, where the product is sold or supplied and whether there have been previous claims associated with the product.