Insurance Market Source regularly taps into its network of experts for insight into key trends across the insurance landscape. Tyson Peel, National Property & Casualty Manager, Burns & Wilcox Canada, shares his insight on Products Liability Coverage.
Q: Why is the location of where a product is made important to Products Liability Coverage?
Tyson Peel (TP): Brokers and agents should always understand where a product is being manufactured and where the product is being sold to establish the correct Products Liability Coverage. For example, companies overseas often lack proper Products Liability coverage. Location becomes important if a client manufactures their product in China and the product is either defective or causes injury. It is also extremely difficult to go after another company overseas, especially if they do not have the proper insurance. In cases such as this, the wholesale broker is usually the last point of contact and becomes responsible for the claims. Specialty markets will need to ensure that the company manufacturing the product has coverage, and has the same or similar standards in place as their home country.
Q: Why is the location of where the product is sent important when gaining coverage?
TP: When accidents occur it is important to ensure proper coverage so clients do not become strained by the hefty cost of litigation. The United States has a more litigious environment and greater claims costs than Canada, and can present coverage problems for specific products.
In Canada, we see a lot of products being sent to the U.S. or other countries across the globe. For U.S. exposures, it is important to add USA Conditions to the policy. This clause amends the policy by making all costs, fees, charges, expenses and supplementary payments inclusive of the policy limit. It allows for more control as the insurer would be able to predict costs, as fees and expenses in the U.S. can become extensive. Brokers will also want to make sure that the General Liability policy will cover products worldwide. If a purchaser resells the product or if the product gets to another country unintentionally, it is important that there is still coverage.
The type of product also makes a sizeable difference. If the item is more common, it will be easier to provide coverage. However, if the product has potential safety concerns, the broker or agent should make the markets well aware of the safety issues and confirm the products meet the appropriate safety standards, like the Canadian Standards Association (CSA) in Canada.
Q: What claims examples can you share?
TP: One recent example is the Products Liability for Samsung smartphone batteries setting on fire. Products Liability Coverage is not a warranty and does not cover the product itself, only the harm or damage it may have caused to third parties. For phones that catch fire, insurance pays for third-party damage resulting from the fire.
Hoverboards are also a large liability right now. Many of these products are being imported from China. I have been involved in a claim where the battery charger did not have the proper shut off safety mechanism installed. Without the proper regulator, the device gets too hot and explodes. Claims from these instances have occurred in garages, homes, businesses, and even public places. One recent claim burned an entire house down, costing the insurance company more than $1 million in repairs.
Product Recall insurance may also be added on top of this coverage to pay for the cost of recalling defective items. One small U.S. plumbing business had been using certain parts from France that unfortunately failed. The valves and joints in many of their recent installations caused water damage to homes and businesses due to the defective products.
Q: What should brokers and agents know upfront prior to starting the submission process?
TP: Brokers and agents should have the following information from their clients prior to starting the submission process: country of manufacture, product specifications, quality control records, batching, proper licensing, government standards approvals, country of sale, and product warranty paperwork. Warranties help showcase the client’s level of confidence in their product. Additionally, brokers and agents should know that much of the time Products Liability Coverage is included directly within a Commercial General Liability policy. There are instances where a standalone policy is necessary for contract-specific cases.
Products Liability Coverage has numerous intricacies and should be discussed with a trusted Commercial Insurance expert. Digital technology has opened the world to entrepreneurs, allowing anyone to have products produced and sold over the internet. This, added to a greater focus on class action lawsuits, gives brokers all the more reason to be in tune with their clients’ needs.