If you are a manufacturer, retailer, or wholesaler, managing your product liability exposure is a critical part of your overall risk management plan. Let’s take a look at some of the questions a liability underwriter will ask when deciding whether or not to offer products liability insurance.
- How potentially harmful is the product? If only a component part, what is the ultimate product? Parts used in aircraft and medical equipment get scrutinized closely.
- Is the applicant a manufacturer, retailer, or wholesaler of the product? From an underwriter’s perspective, the manufacturer will generally have the most exposure to product suits and the wholesaler the least.
- How many years of experience does the applicant have in the business? Underwriters like to see a track record of good loss experience. A new manufacturer of high exposure parts could have a hard time getting coverage.
- What is the applicant’s Quality Control Program? This would include evaluating how the product is tested, inspections, record keeping, instructions for use, complaint handling, and claim review.
- Did the applicant handle any different products in the past?
- Does the applicant plan any new products in the future?
- What is the extent of the applicant’s market: local, regional, national, or international?
The last point regarding market brings up an important consideration for businesses that have an international customer base. The standard products coverage form requires that any injury occurring outside the U.S., Puerto Rico, or Canada and arising from the insured’s products is covered only if the suit is filed inside the U.S., Puerto Rico, or Canada. Thus, it may be prudent for those selling products outside of these areas to obtain a Foreign Liability Coverage Policy. Similarly, underwriters will often treat distributors of foreign-made products as manufacturers from an underwriting and pricing standpoint because it may be determined that recourse against the foreign manufacturer or supplier is unlikely, or that the manufacturer/supplier has no products liability insurance.
Manufacturers should also evaluate their exposure to product withdrawal. Anyone who reads Consumer Reports magazine probably notices its regular list of defective products that are being withdrawn. Many carriers offer coverage for the expenses incurred by the insured for withdrawal of their product.
Finally, all business owners with a significant products exposure should give serious consideration to purchasing an umbrella policy. This will provide additional catastrophe protection from large products suits that could jeopardize the viability of your operation.
Are you comfortable with the management of your company’s products liability exposure? If you have concerns, contact your agent for additional risk management ideas.
The coverages here are described in the most general terms, and are subject to the actual policy conditions and exclusions. For actual coverage wording, conditions, and exclusions, refer to the policy or contact your agent.