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Product Liability Insurance to Protect against Risks Related to Products

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Risks go hand-in-hand with businesses. Some risks are common to all businesses, but there are those risks that are specific to manufacturing of products. Manufacturers who make and sell products are vulnerable to the possibility that the product sold by them could cause damage to a third party – either property or a person.What happens if a customer gets hurt or injured by using a product manufactured by a company? Theoretically, nothing stops the aggrieved party from making a large claim against the manufacturer.

Even a small defect in the product could expose the manufacture to huge claim. However well-designed the products that an organization manufactures or sells might be, accidents do happen – and it is crucial for the manufacturers to stay adequately protected against such possibilities. Major issue with the products that are sold can have major impact on the manufacturer’s reputation and profitability – and even on their existence.

What can help corporates against such possibilities is a Product Liability Insurance. The Product Liability Insurance covers a manufacturer if a product manufactured or sold by the insured causes an injury or damage to a person or their property. A company could be liable to pay compensation even if it did not manufacture the product. The company could be liable also if its business name is marked on the product or if it repaired or made changes to the product. The cost of such liability could be high enough for the survival of the business itself. By getting the right Product Liability coverage, you don't have to worry about any type of financial difficulties that might be associated with a lawsuit.

Product Liability Insurance protects businesses against a number of possibilities. It covers manufacturers, marketers, suppliers and traders who become liable to pay legal expenses for buyer’s losses, injuries or property damage in case of buyer finding about defective or damaged goods. It provides protection at both sides, assuring safety for the business as well as for customers, as consumers of the product can claim for damages and legal fees by filing a suit on the liable party. Most non-life insurers in India are offering Product Liability Insurance policies. Hence, it is prudent to gather all relevant information related to the scope of coverage of such as policy before selecting the policy that suits one’s unique requirements. The first thing that a company (manufacturer) must know that there are multiple liability insurance products and Product Liability Insurance is one of them. Like the other corporate insurance products, there are a number of options available that can be added to a basic Product Liability insurance. A detailed consultation with a lawyer can be helpful in choosing the appropriate Product Liability policythat fits your business requirements.

HDFC ERGO offers HDFC ERGO’s Product Liability Insurance is a critical cover for product manufacturers / sellers /distributors in India. The policy not only protects the businesses from the claims, but also covers legal costs associated with defending these claims against the organization. This policy covers all sums (including defence costs) which the insured becomes legally liable to pay as damages as a consequence of:

• Accidental death/bodily injury or disease to any third party; or

• Accidental damage to property belonging to a third party

...arising out of any defect in the product manufactured/ sold / designed / distributed / serviced/ altered by the insured and specifically mentioned in the policy after such product has left the insured’s premises.

Coverage on this policy is written on a claims-made basis, i.e. a liability policy that provides coverage for an injury or loss if the claim is first reported or filed during the policy period. However, the policy offers the benefit of retroactive date, i.e. a date stipulated in a claims-made Liability policy declarations section as the first date of incidents covered by the policy. The retroactive date is designed to provide coverage for claims resulting from incidents that take place prior to the current policy term. Renewal claims-made policies usually have the retroactive date of the first policy issued to the insured. When this is not done, there is a gap in coverage.

HDFC ERGO offers a couple of extensions with its Basic Product Liability policy. to suit the product more with different types of specific liabilities that the manufacturer can be exposed to. Global extension: Policy can be extended to cover Liability arising out of judgments or settlements made in countries anywhere in the world.

Limited vendor’s Liability extension: Limited vendor’s Liability means Liability arising out of sale and distribution of named insured products by vendors with original warranties and instructions of use of the product specified by the manufacturers.

The amount of coverage needed by a business under Product Liability Insurance depends on: Perceived risk from a product: You should first consider the amount of risk associated with your product. For example, a heavy machinery manufacturer is at a greater risk of being sued than a manufacturer of linens and would therefore need more Liability Insurance.

Jurisdiction/Country of exports: If you export to countries across borders with a history of awarding high damage amounts to plaintiffs, you will typically need to have product Liability insurance with higher coverage limits.

HDFC ERGO also offers customized coverage on its Product Liability Insurance for a business’s specific needs such as:

• Product Liability in combination with E&O and general liability

• Product Liability with vendor extensions