Any product that has a use also has a potential for misuse and harm. It may break unreasonably fast, damage someone or something, or even be promoted in a misleading manner. Enter product liability —- and enter insurance policies to cover that liability.
The concept of product liability has broadened well beyond its earliest common-law beginnings, and so, too, has Product Liability insurance. Product liability once described only a narrow transactional breach between the seller and buyer of a product. Nowadays, though, it can be interpreted to encompass virtually any situation in which someone may be held responsible for harm attributed to a mishap with a product. As a result, Product Liability insurance is now built to cover the various parties likely to be brought into a product lawsuit. Those parties can be any entity involved in the product stream: manufacturer, importer, wholesaler/distributor, and retailer.
Most Product Liability Coverage is now included as part of a General Liability policy, but more specialized, complex products often demand special handling and a carrier that’s committed to understanding the nuances of the product and its associated risk.
“Carriers sometimes shy away from unusual products,” says Angela T. Williams, Vice President of California Brokerage at Burns & Wilcox.
To illustrate that hesitance, Williams points to a case involving the manufacturer of an antigravity treadmill that provides rehabilitation patients with a low-strain workout.
The product, typically sold to hospitals and gyms, is expensive but unique within its market. Some carriers were concerned about its potential misuse, noting that a wealthy individual might purchase it for home use or an inexperienced gym member could use it without supervision. In the end, finding the right coverage for the product entailed extra negotiation,” says Williams.
Then there’s the case of an American manufacturer-distributor of specialized electric cars that Williams also helped place. Though some of the vehicle’s components are made by other companies, including at least one from China, the carrier needed to cover the entire car, since the manufacturer distributor would be targeted in any products claim. There could be some subrogation if another American company’s parts were clearly at fault, but little chance with a Chinese parts manufacturer. And since many of the insured vehicles were being shipped to Mexico, where American carriers usually don’t write, Williams avoided a separate Mexican policy by finding a single carrier who could cover product liability in the United States and Mexico.
“International commerce has made products liability complicated enough. Further exacerbating matters is the increased risk importers face from plaintiffs’ attorneys who don’t want to, or cannot, bring lawsuits against manufacturers in many of the countries that export to the United States,” explains Chris Zoidis, Vice President in the Special Risk Division at Burns & Wilcox in Farmington Hills, Mich. “We often see retail agents and their distributor clients unprepared for this. The insured discloses that they distribute products manufactured in a foreign country like China and see a significant increase in general liability premium simply because of the products liability exposure.”
The concept that a distributor can be held liable for foreign-made products has been around for years, says Zoidis. “The difference now, though, is that U.S. companies are importing more from countries that don’t have the same legal and insurance infrastructure, and don’t have the same product safety protocols as the U.S.”
Williams cites a lengthy list of known manufacturing problems in China, including poor quality control, underage workers, lead-laden ceramics, and toxic baby food. While noting that China is improving the quality and safety of its goods, she says that progress may not come fast enough to meet insurance carrier concerns.
For example, carriers are universally excluding Chinese drywall products, she says, mindful of the flood of claims from Louisiana and other Southeastern states that were hit first by Hurricane Katrina, then hit by eroding pipes and fumes allegedly caused by defective plasterboard used to repair homes damaged in the storm.
Beyond proper coverage, this puts the responsibility on U.S. distributors of consumer goods to identify and intercept problem goods before they are passed on and an individual is injured. They need to check for manufacturing defects like metal fatigue or poorly cured plastic pieces that fall off a toy and present a choking hazard. Is there a design flaw like a cutting shop tool’s vibration that will cause screws to come loose? Does marketing imply the product can be put to an unsafe, unintended use? What’s more, the process of repacking and labeling an item can bring a wholesaler more firmly into the line of legal fire.
Another consequence of brisker international trade is an increase in the Errors & Omissions (E&O) exposure of retail brokers and agents if they don’t assure that an importer has properly disclosed on the insurance application where its products are made.
Here’s a New One…
Meanwhile, Williams says she has also noticed an increase in product claims from do-it-yourselfers who lack the requisite skill to do a job right. Homeowner-installed windows, for instance, prompt plenty of suits that blame the window manufacturer or distributor when improper window installation has let in moisture, causing mold, mildew, and a rotting window frame. “The actual cost of the window isn’t great, but if it goes to trial, defense costs go through the roof,” she says.
There are also claims from unusual homeowner-attempted installations. For instance, a man installed a stripper pole for his wife, but when she used it, the pole ripped out of the ceiling, causing her to fall on her hand. The woman is seeking a substantial settlement for pain and suffering because, she says, her injury prevents her from working as a craftsperson.
These cases and others like them illustrate just how hard it can be to anticipate potential product liability action. What we can predict, however, is that regardless of actual fault, the plaintiff’s attorneys will look up and down the distribution chain in search of compensation for their clients.