Product Liability Insurance Policy in India

Usually, Product Liability Insurance Policy Claims arise in the following situations:

• Manufacturing Defects: Manufacturing Defects are a common source of Product Liability Insurance Claims. In such cases, there is usually a defect in manufacturing a particular batch of products which results in Product Liability Insurance Claims.
• Design Defects: Product Liability Insurance Claims which arise out of Design Defects allege that the Product’s inherent design was incorrect from the outset. Design Defect Claims are different from Manufacturing Defect Claims in the sense that Manufacturing Defect Claims allege that there was an error in manufacturing a particular batch of products. As a result, the particular batch of product is defective. However, Product Liability Insurance Claims alleging Design Defects arise because the entire product (and not a particular batch of products) is defective as there was an error at the design stage itself.
• Inadequate Instructions/Warning or Labeling Defects: Another type of Product Liability Insurance Claims usually arises out of a warning or labeling defect. In such cases, the consumer is supposed to be warned about the inherent danger of consuming the product through the use of labels with instructions. However, the failure to warn consumers might give rise to product liability insurance claims.

Usually, manufacturers get sued over Manufacturing Defects or Design Defects while retailers and distributors get sued over Warning or Labeling Defects.

The Indian Consumer Protection Act, 2019 holds the manufacturer or seller of product liable for manufacturing defects or for inadequate warnings on the product.

The Consumer Protection Act, 2019 clearly defines the Rights of Consumers and it also defines the liability of Product Manufacturers and Product Sellers. Additionally, the Act also outlines the penalties that may be imposed for violations. The Act clearly defines Defect in Goods and Deficiency in Service and Consumers can approach the District, State and National Consumer Disputes Redressal Commissions against defective products and deficient services. The Consumer Disputes Redressal Commission can award compensation to the Consumer for Defective Products Or Deficient Services.

The provisions of the Consumer Protection Act are in addition to other laws and the complainant also has an option to seek redressal in Civil Courts.

A business owner is involved in manufacturing, selling or supplying various products to their customers. This may be as small as a component for a vehicle or a shop selling toys for kids or a restaurant selling food.

Consider the recent famous case of Lead being found in Maggi. The National Consumer Disputes Redressal Commission initiated legal action against Nestle (producer of Maggi) as the lead content was found to be more than the permitted quantity. Such cases are all too common.

Though as a business owner you take utmost care of your customers, sometimes accidents happen which may cause injuries to customers and thus making you liable for your products.

This may result in customers suing the business owner. Such cases may be expensive to defend and an adverse judgment may result in causing substantial financial damage to the business apart from the loss of reputation.

A Comprehensive Product Liability Insurance Policy will be immensely helpful in such a case.

Any business which is involved in manufacturing, designing, selling or supplying products should buy a Product Liability Insurance Policy for itself.

If a company’s defective products causes a bodily injury or property damage to the customer, the customer may sue the company for damages and a Product Liability Insurance Policy will provide cover for Legal Expenses and Compensatory Damages awarded by the courts in such a case.

The business may just be supplying a small component to the final product but it could still be held liable for damages if it results in injury.

Usually, automobile manufacturers, auto component manufacturers, businesses involved in manufacturing food products and pharmaceutical products, restaurants and retailers should purchase a Product Liability Insurance Policy as these businesses are at a higher risk of getting sued.

The Insured can opt for the following Add-On Covers under a Product Liability Insurance Policy:

Technical Collaborators Extension

Technical Collaborators Extension in a Product Liability Insurance Policy provides for inclusion of Collaborator in the Policy with respect to the Technical Collaboration between the Insured Party and the Collaborator.

Third Party Manufacturers Extension

Third Party Manufacturers Extension allows for cover of products which are not manufactured by the Insured but by sub-contractors by paying an additional premium.

Vendors Liability Extension

Vendors Liability Extension in a Product Liability Policy extends the coverage of the Policy to include designated vendors as an Insured but only with respect to distribution or sale of the Insured Product in the regular course of the Vendor’s Business.

Following Insurance Companies offer Product Liability Insurance Policy in India:

1. New India Assurance Company
2. The Oriental Insurance Company
3. Tata AIG General Insurance Company
4. Iffco Tokio General Insurance Company
5. ICICI Lombard General Insurance Company
6. Bajaj Allianz General Insurance Company

The Insured needs to follow the following steps when filing a claim under the Product Liability Insurance Policy:

1. Notify the Product Liability Insurance Company of the Claim. Provide relevant information such as type of injury/illness, description of accident.
2. Provide necessary documentation such as Policy Copy, Legal Notice Received, Claim Form etc.
3. The Insurance Company will provide the Insured with a lawyer to defend him against the lawsuit in courts. Additionally, the insurance company will also provide compensation for damages in case of an adverse judgement by the court.

A Product Recall Insurance typically provides 2 coverages:

1. Coverage A: Product Recall Expense
2. Coverage B: Product Recall Expense Liability

The Product Recall Expense cover reimburses the Insured Party for the expense incurred in recalling a Product arising out of a covered incident.

Product Recall Expense typically include expenses incurred for the Recall, Recovery of Possession/Control or Disposal of Product from a distributor or user of the product as the consumption or use of product poses actual and imminent danger of Bodily Injury or Property Damage.

Product Recall Expenses covered by a Product Recall Insurance Policy also include the following:

• Cost of Communication to notify product users of a covered incident
• Cost of Shipping the Product from purchaser or distributor to the Insured’s Designated Place
• Disposal Cost that are required to be incurred to avoid Bodily Injury or Property Damage
• Expense to rent additional warehouse or storage space