Insurance insiders offer advice and insight on Products Liability Coverage
Q. What exactly is Products Liability Coverage and what are some claim examples? Melanie Elias, Director of Claims, Minuteman Adjusters, Inc., Farmington Hills, Mich. responds:
In the products/completed operations portion of a general liability policy, Products Liability Coverage is intended to provide protection against defective products that are negligently designed or manufactured, then released into the stream of commerce. Basically, anyone who handles the product — the manufacturer, distributor, wholesaler, and eventually, the retailer — may be held responsible for bodily injury or property damage resulting from using the product as it was intended to be used. Often, agreements may exist between the various entities that will diminish or eliminate liability for “middlemen” such as a wholesaler and distributer and/or the end retailer, as long as the product is not altered in any way. In certain cases, something as simple as mislabeling product ingredients could result in unexpected and significant injury. That’s when the Products Liability portion of the general liability policy comes to bear.
Products Liability claims range from simple to complex. A simple claim could involve food that is served in a restaurant. We have all heard stories of someone who breaks a tooth while eating a restaurant entree that was advertised as “boneless.” Meanwhile, a complex claim could involve a food item such as oysters harvested in a Southern state and shipped to restaurants across the country. A restaurant patron in another state consumes the harvested oyster and suffers an infection that results in a leg amputation, allegedly due to bacteria.
Q. How do you know a reseller account is properly insured against Products Liability? Jim Epting, CPCU, Vice President, Branch Manager, Burns & Wilcox, responds:
Products Liability is a line of business that is traditionally handled within the excess and surplus lines marketplace. It is designed to protect the insured against allegations of negligence due to the manufacture or sale of goods to the public. Claims of Products Liability typically stem from one of three distinct areas of the production process. Manufacturing defects claims might arise if a company builds a product with inferior parts, materials or poor workmanship. Design flaws or defects occur when the entire design is bad, so no matter how the product is manufactured, it is inherently dangerous. The third area is failure to warn or improper warnings. When a product does not carry clear and obvious warnings on its intended safe use or consequences of unintended use, the company could be held liable.
Many times we find that resellers of a product do not carry adequate coverage for their potential Products Liability exposures. Perhaps their position is that since they did not manufacture the product, it is not their problem. That’s not the case, however. If they are involved in the stream of commerce, they could be held liable for bodily injury or property damage to the end user. The exposures increase if the reseller re-labels the product or even worse, repackages the product. Additionally, if the product manufacturer is foreign, that entity may lack coverage for their U.S. domestic operations. What’s more, it may not even fall under U.S. jurisdiction. In that case, the reseller would be considered the manufacturer and face the claim alone, without protection from the manufacturer.
At Burns & Wilcox we have markets for virtually any type of product, large or small, dangerous or innocuous.
Q. A client just informed me that his company began manufacturing a new product for airplanes about a year ago. The insurance carrier with which I placed the client’s CGL policy now says products that go on airplanes are excluded and there is no way they will consider adding it. What do I do now? Jeff Diefenbach, CPCU, Vice President, Branch Manager, responds:
This happens more often than you might think. Fortunately, you have recourse. The biggest concern, obviously, is to get coverage for the product as soon as possible. Call Burns & Wilcox for a complete and quick solution. The first objective is to get coverage for products that are being produced now. The second objective is to cover products that are already made and out in the marketplace. Burns & Wilcox has programs to address that very scenario. Two approaches might work in this situation: a CGL policy for the entire operation or a monoline product policy specifically for the product. We can also offer an occurrence form that will cover occurrences during policy term, or alternatively, a claims-made form that will cover claims brought during the policy period, subject to the retroactive policy inception date. Whatever the case, we will search our markets for the best program for your insured.