14 - 1copyright 2008, the national underwriter company product liability insurance what is it? ...

14 - 1Copyright 2008, The National Underwriter Company

Product Liability Insurance

What is it? Liability exposure of the manufacturer whose

malfunctioning products may cause injury or property damage or of the contractor whose failed structures or projects may do the same

Chapter 14Risk Management For Financial Planners



Basis for claim Negligence

Manufacturer has duty to exercise reasonable care in the manufacturing, designing and packaging of the product

Manufacturer has duty to provide adequate warning of inherent dangers that are not obvious to the distributor or the consumer

Breach of express warranty Manufacturer represents certain characteristics about its

products to its customers



Basis for claim (cont’d) Breach of Implied warranty

Fitness Buyer makes known to seller purpose for which the use of the good

is intended Buyer is relying on the sellers skill or judgment to furnish

appropriate goods

Merchantability The goods are of a quality comparable to that which is generally

acceptable in the merchants line of trade




Basis for claim (cont’d) Doctrine of strict liability

Holds sellers liable for injuries caused by defective and unreasonably dangerous products

Injured person is not required to prove negligence Only that the product was defective when it left the control of the

seller or manufacturer The defect was the cause of the injury




The products/completed operations coverage form CG 00 37 Occurrence form

For coverage to apply, injury or damage must occur during the policy period

A claim made based on those injuries or damages can be made at any time during or after the policy period

CG 00 38 Claims made form For coverage to apply, injury or damage must occur during the

policy period A claim for damages has to be made during the policy period

Covers bodily injury and property damage occurring away from the premises owned or rented by the insured arising out of the insured’s product or work




The products/completed operations coverage form (cont’d) Same sections as the commercial general liability form

(CGL) Insuring agreement Exclusions Supplementary payments Who is the insured Limits of insurance Conditions Definitions




The products/completed operations coverage form (cont’d) Differences

Applies to products/completed operation hazards Not to all liability exposures the insured faces CG 00 37 and CG 0038 do not offer insurance coverage for

personal and advertising injury liability or for medical payments

Exclusions Section Form is for products and completed work, not for ongoing

operations

No exclusions for pollution, aircraft, auto or watercraft




The products/completed operations coverage form (cont’d) There are exclusions preventing coverage for the

expense of a recall of the products and work Coverage for injury and damage caused by the products but not

for damage to such products or work That risk is assumed by the insured

Supplementary payments Payments the insurer agrees to pay in addition to damages

Who is the insured Who is applicable to seek coverage under the terms of the form




The products/completed operations coverage form (cont’d) Limits of liability clause

Guideposts on the amounts the insurer will pay Occurrence limits

Most the insurer will pay for damages arising out of one occurrence Aggregate limits

Total amount the policy will pay because of bodily injury or property damage during the policy period.

Conditions section Governs the contractual relation between the insured and insurer Primary basis form - no excess insurance clause as with CGL

form




The products/completed operations coverage form (cont’d) Definitions section

Basically the same as the CGL, but The definition of products/completed operations hazard has to

be understood The products/completed operations coverage form applies to bodily

injury and property damage included within the products/completed operations hazard

If the claim does not fit the parameters of that defined term, the coverage form will not be useful to the insured




Advantages Risk exposures can be transferred to the insurer Insured can rely on the insurer to handle the legal work

and other work associated with a claim Insurance company can act as a loss control aid

Liability exposures can be discovered preventative measures can be put into place to prevent losses




Disadvantages Premiums increase as the risk exposure increases Insured agrees to give up any control over the

management and settlement of a claim or lawsuit made against it

Not all risk exposures may be covered



14 - 1copyright 2008, the national underwriter company product liability insurance what is it? ...

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