Product Liability Insurance

Liability insurance

Liability insurance is a part of the general insurance system of risk transference. Originally, individuals or companies that faced a common peril, formed a group and created a self-help fund out of which to pay compensation should any member incur loss. The modern system relies on dedicated carriers to offer protection against specified perils in consideration of a premium. Liability insurance is designed to offer specific protection against third party claims, i.e., payment is not typically made to the insured, but rather to someone suffering loss who is not a party to the insurance contract. In general, damage caused intentionally and contractual liability are not covered under liability insurance policies. When a claim is made, the insurance carrier has the right to defend the insured. The legal costs of a defense are not affected by any policy limits, which is useful because they can be significant where long trials are held to determine either fault or the amount of damages.
Contents
1 Overview of liability insurance
1.1 Public liability
1.2 Product
1.3 Employers
2 Evidentiary rules regarding liability insurance
3 External links
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Product liability insurance
In product liability insurance (PLI) terms, a product is any physical item that is sold or given away.
Products must be "fit for purpose". Under the Consumer Protection Act 1987, you're legally responsible for any damage or injury that a product you supply may cause.
Your responsibilities
If you supply a faulty product, claimants may try to claim from you first, even if you did not manufacture it. You'll be liable for compensation claims if:
your business' name is on the product - ie the manufacturer made it for your brand
your business repairs, refurbishes or changes it
you imported it from outside the European Union
you cannot clearly identify the manufacturer
the manufacturer has gone out of business
Otherwise, the manufacturer is liable - or the processor, where the product involves parts from multiple manufacturers.
However, you must also:
show that the products were faulty when supplied to you
show that you gave consumers adequate safety instructions and warnings about misuse
show that you included terms for return of faulty goods to the manufacturer or processor in any sales contract you issued to the consumer
make sure that your supply contract with the manufacturer or processor covers product safety, quality control and product returns
have good quality control and record-keeping systems
The nature of risk, ie the viability of a claim and the premium, is affected by:
who the product is sold to
how and where it is used
any warnings or labels provided
What is covered
PLI covers you against compensation awarded as a result of damage to property or personal injury caused by your product. Bear in mind that if someone is awarded personal injury compensation, the NHS can claim to recover the costs of hospital treatment (including ambulance costs). This applies to incidents that occur either on or after 29 January 2007.
Read about the Injury Costs Recovery Scheme on the Department of Health (DoH) website.
PLI may not cover you against financial losses to a business or person caused by a faulty product which you manufactured, serviced or supplied. Download a guide to the Consumer Protection Act 1987 from the Department for Business, Enterprise and Regulatory Reform (BERR) website (PDF).
PLI also covers you against unforeseen circumstances, such as product faults your quality control system couldn't trace. However, if you simply make an inferior product, you may be unable to make a claim, or even get insurance. Bad workmanship is not covered either.
Before issuing a policy your insurer will want to know that your:
manufacturing or services are conducted according to industry best practice
staff are adequately trained
equipment and systems are appropriate, up to date and well maintained
How much cover to take out
Most businesses have cover of between £1 million and £5 million. The norm is £2 million.
To reduce your premiums, implement quality control measures. This ensures lower premiums, reduces the risk of compensation claims and helps protect your reputation in the marketplace.
Subjects covered in this guide
Introduction
How liability insurance works
Employers' liability compulsory insurance
Public liability insurance
Product liability insurance
Pollution risk insurance
Property owners' liability insurance
Professional indemnity insurance
Directors' and officers' liability
Seek specialist advice

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Types of Small Business Insurance
Professional Liability Insurance (Errors and Omissions, E&O)Professional Liability insurance, also referred to as Errors and Omissions insurance or E&O , is insurance to protect you and your company in the event a client alleges they have suffered a financial loss as a result of an error or an omission committed by you in the delivery of your professional services. This coverage is separate from a General Liability (GL) policy which would cover you mainly for bodily injury or property damage liability.

Workers' Compensation Insurance

Workers Compensation insurance provides medical and disability coverage for your company employees in the event of a work related illness or injury. The employers' liability portion of most Workers' Compensation policies protects your company in the event that an employee files suit claiming that your company's negligence was the cause of the work related illness or injury. Workers' Compensation insurance is required in many states.

Business Liability Insurance Package Policy

Often referred to as a Business Owners Policy (BOP), a General Liability package policy protects your company in the event that a client is injured on your premises or if you or one of your employees injures someone or damages property at a client's location. The General Liability coverage on a business liability insurance policy also meets your landlord's requirement that you carry business premises liability insurance.

Umbrella Liability Insurance

An Umbrella Liability (more accurately Excess Liability) provides coverage for claims that exceed the amount of coverage on your General Liability policy and may also add coverage to your Commercial Auto coverage as well as the Employers' Liability coverage on your Workers' Compensation policy. Coverage is triggered when claims are in excess (thus the name) of the underlying insurance.
For more information on Workers' Compensation insurance, Professional Liability insurance (E&O insurance), General Liability insurance, and Umbrella Liability insurance see our Coverage Review pages.

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Product liability insurance

A SMALL Chicago manufacturer of camping tents had his product liability insurance cancelled recently; the premium had been $2,700 annually. The new insurer — who was found after some difficulty — charged a premium of $27,000 for less coverage. That figure exceeded the earnings for six of the nine years that this struggling firm has been in business. The manufacturer employs about 100 persons in the inner city, and their jobs are clearly threatened by this huge new cost.
In Moline, a company which makes emergency and fire alarm signal equipment and employs 35 persons saw its product liability premium jump from $300 in 1974 to $15,000 in 1976. The company reported, "Some cities are requiring a certificate of insurance ... in order to bid on jobs. Big conglomerates have [this], but we cannot provide [it]." The company has had no claims against its product since 1928.
A manufacturer of electronic printed circuit boards with a work force of 15 and a sales volume of $181,000 does not carry product liability insurance. The reason: "If we had to purchase this type of insurance above and beyond our present insurance, such as Workmen's Comp, health, fire and theft, we would not be able to compete with foreign competition; in fact we would lock up the plant and quit."
These cases, taken from the files of the Illinois Manufacturers' Association, illustrate the growing problem of product liability insurance costs. Testimony by the association before the Illinois Insurance Laws Study Commission in February 1977 revealed that manufacturers in the state are worried about the impact of these costs on profits and prices. Dozens of industrial concerns, particularly small companies, are threatened with extinction because of soaring insurance costs or lack of adequate insurance. The problem is so serious that some firms are operating without product liability insurance because the premiums are too high or they cannot get the coverage at any price.
Product liability relates to the legal responsibility of one who makes or sells a product to compensate a user, consumer or others who suffer injury or damage as a result of the use of the product. Generally, small and medium-size businesses purchase product liability insurance as part of their general liability coverage. Large firms are self-insurers for small product claims and may buy insurance as part of an umbrella policy to provide for catastrophic loss.
The problem
How big is the product liability problem? According to a November 1977 report by the federal Interagency Task Force on Product Liability, the problem has not yet reached the crisis proportions of the medical malpractice issue a few years ago. Product liability insurance costs have risen sharply since 1974, but most manufacturers can still get insurance. However, the higher rates have hit small businesses hard, particularly makers of products in which there is a risk of personal injury. The Illinois Manufacturers' Association reports that manufacturers of machine tools and other kinds of capital equipment are having trouble, as well as makers of pharmaceuticals, hard tools and sporting goods. Even those who make simple products with no moving parts, such as hammers and ladders, have been much affected.
While giants like General Motors can devote millions of dollars to safe product manufacture and design and have the capacity to self-insure all but the most catastrophic risks, a smaller firm may not be able to spend such large sums. It must rely heavily on product liability insurance to protect its assets. Since firms with less than 20 employees make up the majority of the more than 300,000 manufacturing establishments operating in the U.S., their product liability problems can have considerable economic impact.
In addition, the federal task force found that while the average cost of product liability insurance is less than 1 per cent of sales in most of the industries studied, it was as high as 10 per cent in some. And the consumer at the end of the line may be paying more than 1 per cent because retailers and distributors must also purchase product liability insurance and pass the costs along.
Product liability costs cannot be blamed as "the sole and direct" cause of numerous business failures, the task force said. But it did find these costs to be one of several reasons why small businesses in high risk lines go under. And firms that are now doing without insurance may not be able to withstand a large product liability judgment in the
PHILLIP M. ROWELL Legislative analyst for the Illinois House Democratic staff, he has done extensive research on product liability.
6/July 1978/Illinois Issues
future.
One of the causes of this budding crisis is a sharp increase in the number of product liability claims filed. Not too long ago, product liability coverage was a profitable, though small line of business for insurance companies. The courts, by and large, acted within the constraints of readily definable causes of action such as negligence and breach of warranty. However, in the 1960's new attitudes and values began to emerge which gave rise to a wave of demands for greater consumer protection. These demands, championed by a number of consumer activists, gained wide support in the news media, the courts, the legislatures and enforcement agencies. The attention given to consumer protection heightened the public's awareness of the possibility of recovering for damages. The result was a new breed of claim-conscious consumers.
Consumerism
The impact of consumerism is evidenced in today's federal consumer protection legislation. In 1967, the National Commission on Product Safety was established and resulted in the Consumer Product Safety Act of 1972 which covers products for use in households, schools, recreation or for personal use or consumption. Also in 1972, the Occupational Safety and Health Act was enacted. It is concerned with safety of premises, tools and equipment for the protection of employees.
Another cause of burgeoning product liability suits is the nation's rapidly expanding economy. New products enter the stream of commerce each year, many of them complex and technologically sophisticated. Consumers have high expectations for the performance of these products as well as those already in use.
And, it cannot be denied that there is a safety problem. Many injuries at home and at work are related to faulty products. National Safety Council statistics show that in 1975 there were 21.4 million product-related injuries in the home including 110,000 permanent disabilities and 25,000 deaths. The estimated loss to the U.S. economy was $6 billion. In America's work places, the council estimates that there were 8.7 million product-related injuries in 1975 with 2,200 disabling injuries and 12,600 deaths for a total economic loss, both at home and at work, of $16 billion.
The new wave of consumer awareness and legislation has helped to focus the attention of manufacturers on the need for increased safety in design, improvements in quality control and inspection, and proper instructions and warnings to potential users. The insurance industry has stressed that manufacturers must do everything they can to produce the safest possible products. However, because of interpretations of the law, the insurance industry feels that efforts to improve product safety could even backfire against a manufacturer. For instance, modifications to improve the safety of a product have been used as evidence in court that the product was not originally as safe as it could have been. The result is a growing conflict between the insurance industry and the judicial system.
In Illinois, the law of product liability has been expanding at a rapid rate since 1965 when the Illinois Supreme Court handed down the landmark decision Suvada v. White Motor Co. The Suvada decision was the culmination of a trend toward a broader definition of tort liability for faulty products. "Tort" is a wrongful act, not involving a crime or a breach of contract, for which one can be held responsible for civil damages. (For details on the Suvada decision, see box, p. .)
The causes of the product liability problem are unsafe products, uncertainties with personal injury litigation and industry ratemaking practices
Since Suvada, producers of consumer products have found themselves in court as defendants to claims based on legal theories unknown to them. And, consumers who are injured by defective products are finding that they no longer have to bear the burden of rising medical expenses and loss of income. Not surprisingly, they are filing more lawsuits against the producers of defective products.
With the litigation system wide open, it isn't just the producers who are getting sued. Illinois wholesalers and distributors have also been involved in an increasing number of product liability claims and have found their insurance premiums going up or — in extreme cases — disappearing altogether with the termination of coverage. Although these firms have nothing to do with the design, manufacture or maintenance of the products they sell, they have been held liable for injuries to workers using those products. Even if the suits are dismissed, there is still the expense of preparing a legal case.

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Product Liability Insurance in India

Basics of Legal Liability

Liability arises from a civil wrong or breach of personal duty imposed by law on a person and owed to his/her fellow citizens. In some countries legal rights and duties are framed in a Civil Code. In others they are not codified but drawn from the precedent of decisions handed down in the courts over the centuries; this is known as "Common Law".

Products Liability

Products Liability insurance indemnifies the seller or supplier (including manufacturer, wholesaler, etc.) of goods in respect of liabilities that may arise from the product after it has left their immediate control. Some common general exceptions under these policies are : - Liability to employees - Liability assumed by the insured under agreement - Liability for Personal Injury/Bodily injury/property loss due to gradual seepage/pollution or contamination and cost of removing, seeping, polluting or contaminating substances. However accidental pollution can be covered - Fines or penalties, exemplary or punitive damages - Damage directly or indirectly caused by arising out of use of asbestos
Other Policies of Interest

Workmen Compensation

This policy provides cover to employees who sustain personal injury by accident or disease in the course of employment in the business.

Insurance is the subject matter of solicitation. IRDA Registration No: 102. Granted on October 23, 2000.

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The PLI premium for a Company (if ISO 9001 certified) is only 0.5% of your annual sales turnover for claims in India. The max claim settlement is Rs 1 crore

The Insurance premium is 2.5% if you want coverage in germany