Product Liability Insurance Policy – Product Recall Insurance: Coverages, Exclusion, Add-On Covers, Companies, Cost, Benefits, Claims Process, Quotes

What is a Product Liability Insurance Policy?

A Product Liability Insurance Policy is a type of Insurance Policy which covers the Insured Party for Defence Costs and Compensatory Damages that the Insured becomes legally liable to pay because of Bodily Injury or Property Damage caused by using an Insured Company’s defective products. A Product Liability Insurance Policy is issued on a Claims Made Basis, that is, the Claim must occur and intimated to the Insurance Company within the Policy Period. A Product Liability Insurance Policy is a must for any company which manufactures, sells or distributes products to protect itself from Claims that its products caused harm or damage.

What does a Product Liability Insurance Policy Cover?

A Product Liability Insurance Policy covers Defence costs and Compensatory Damages that the Insured becomes legally liable to pay because of Bodily Injury or Property Damage caused by using an Insured Company’s Defective products. The Defects covered by a Product Liability Insurance Policy include:

1. 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.
2. 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.
3. 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.

What are the Exclusions in Product Liability Insurance Policy?

A Product Liability Insurance Policy does not cover the following:

1. A Product Liability Insurance Policy does not cover Costs Incurred in the Repairing or Replacement of Defective Product
2. Costs Incurred in Recall of Faulty Product are not covered under a Product Liability Insurance Policy does not cover
3. Fines, Penalties or Exemplary Damages are excluded
4. Claims arising out of Contractual Liability are not covered
5. Claims arising out of Deliberate or Willful Non-Compliance of any Statutory Provisions are excluded under a Product Liability Insurance Policy

What are the Add-On Covers under a Product Liability Insurance Policy?

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

1. 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.
2. 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.
3. 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

Which Companies offer Product Liability Insurance in India?

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

How much does a Product Liability Insurance Policy Cost?

A Product Liability Insurance Policy in India with a Per Occurrence and Aggregate Limit of Liability of Rs3 Crore costs approximately Rs2 Lakhs to Rs2.5 Lakhs. The Cost of Product Liability Insurance depends on the following factors:

1. Nature of Business and Industry: The Premiums for a Product Liability Insurance Policy will be higher for high-risk businesses such as Auto-Components or Pharmaceutical businesses
2. Limit of Liability: The Policy Limit of Liability also impacts the premium of the Product Liability Insurance Policy. Higher the limit of liability, higher will be the premium of the Product Liability Insurance Policy.
3. Coverage: The level of coverage sought is also an important factor which impacts the Cost of Product Liability Insurance Policy. For example Premiums of a Product Liability Insurance Policy with Worldwide Territory and Jurisdiction Coverage will be higher than a Premium for a Policy whose Territory and Jurisdiction Coverage is restricted to India only.
4. Prior Claims Experience: The Prior Claims Experience of the Insured will also impact the Cost of Product Liability Insurance Policy It is advisable to discuss this with product liability insurance agents to get a better idea.

Product Liability Insurance and Indian Consumer Protection Act, 2019

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.

What is the need for a Product Liability Insurance Policy?

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

A consumer of the company may sue the Insured for compensation if he/she suffers a bodily injury or illness because of consuming the company’s products. Alternatively, if using the company’s products causes Property Damage, even then the consumer might sue the Company.

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 Product Liability Insurance Policy is immensely helpful in such a case as it covers the legal expenses and compensatory damages awarded by the court in such cases.

Who should purchase a Product Liability Insurance Policy?

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.

What is the Claims Process in a Product Liability Insurance Policy?

The Insured needs to follow the below mentioned steps to file a Claim under a Commercial General Liability Insurance Policy:

1. Claim Intimation: Intimate the Claim to the Insurance Company as soon as possible
2. Document Submission: Submit the necessary details such as Policy Number, Date and Time of Accident, Description of the Accident, legal notice received etc. Submit the documents required for a Product Liability Insurance Claim such as ID Proofs, GST Certificate, Claim Form, Legal Notice etc.
3. Surveyor Appointment: The Insurance Company appoints a surveyor to examine the facts of the incident.
4. Claim Settlement: 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.

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Product Recall Insurance

There are instances when the Insured Party realises that the product it has supplied or sold in the market is faulty or defective and poses an imminent danger of bodily injury or property damage. The Insured Party has a Duty of Care and Responsibility to withdraw the product from the market even though the Faulty Product has not yet caused any Bodily Injury or Damage. Recalling the product may save the company from bigger future liabilities when the product may cause Bodily Injury or Damage to the user or customer. However, recalling the product from the market also entails significant expenses which can be insured with a Product Recall Insurance. In the recent times, the Automobile Industry has witnessed multiple recalls in India. Product Recall Insurance is normally purchased by the Pharmaceutical, Food, Consumer Products and Automotive Industries

What are the coverages under a Product Recall Insurance?

A Product Recall Insurance typically provides 2 coverages:

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

What is the Product Recall Expense Coverage in a Product Recall Policy?

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:

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

What is the Product Recall Expense Liability Coverage in a Product Recall Policy?

The Product Recall Expense Liability cover reimburses the Insured Party for the Defence Costs and Compensatory Damages that the Insured Party becomes legally obligated to pay arising out of a covered incident.

What are the exclusions in a Product Recall Insurance Policy?

The Product Recall Insurance Coverage normally excludes the following:

1. Cost to Repair, Recondition or Decontaminate the Recalled Products
2. Intentional Act or Omission by the Insured which results in a Product Recall
3. Contractual Liabilities are not Payable
4. Fines or Penalties, Punitive or Exemplary Damages are excluded
5. Product Recall Expenses arising solely out of intervention of Governmental or Public Authority
6. Product Recall Expenses arising out of Deliberate Contamination or Tampering or Adulteration of Product

Get Best Quotes for your Product Liability Insurance Policy with Qian!

If you are in the business of designing, manufacturing or exporting products, Product Liability and Product Recall Insurance are of paramount importance to safeguard your business. Qian has tie-ups with the top Insurance Companies to cater to the clients for their Product Liability Insurance Policy and can assist you with comprehensive covers at competitive premiums. If you wish to purchase Product Liability Insurance Policy for your company, you can reach out to the experts at Qian. We would be delighted to help you out. Feel free to reach out to us at insurance@qian.co.in or 📞 022-35134695 . We will be glad to assist you

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