Product Liability Insurance

1. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

2. Product Liability Insurance Chapter 14 Risk 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

3. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

4. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

5. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

6. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

7. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

8. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

9. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

10. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

11. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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

12. Product Liability Insurance Chapter 14 Risk Management For Financial Planners • 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