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If you manufacture or supply goods, there’s always the possibility that your product could cause damage to a third party – either property or person. A small defect could open you up to massive claims. That’s why HDFC ERGO General Insurance’s Product Liability Insurance is vitally important for product manufacturers. What’s more, it even covers legal costs associated with defending claims against your organization.

What is Product Liability Insurance?

Coverage of a manufacturer’s or seller’s liability for losses or injuries to a buyer, user or bystander caused by a product defect or malfunction.

Who should buy product liability insurance?

Product manufacturers, distributors and sellers are vulnerable to product liability litigation, including class actions, as a result of alleged defects and even when improper use is involved. Regardless of the circumstances, the product manufacturer, distributor or seller is typically brought into the action and will require coverage for loss payments and defence. Product liability insurance provides protection to those organisations facing product liability exposure.

Basis Coverage:

The 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 a third party Accidental damage to property belonging to a third party

…arising out of any defect in the product manufactured by the insured an specifically mentioned in the policy after such product has left the insured’s premises.

Coverage 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 terms. 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.

Exclusions:

The policy does not cover any liability for product recall, product guarantee, pure financial loss such as loss of goodwill or loss of market. The policy also does not pay for the cost incurred for repairing or reconditioning or modifying the defective part of the product.

Extensions:

Global extension: Policy can be extended to cover liability arising out of judgements 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 product specified by the manufacturers.

How much product liability insurance you need?

The amount of coverage your business needs 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.

Cost of Insurance:

This depends on the type of product you deal with. The higher the risk your product represents, the more expensive you premiums will be. Premiums also depend on the total turnover, countries you export to, coverage limits, policy extensions and deductibles. In addition, you can reduce your insurance costs by reducing your risks or by instituting certain quality control procedures at your company.

Identifying, eliminating and mitigating the risk that you have can help protect you against future losses and can also lower your premiums.

Why HDFC ERGO General Insurance for product liability insurance?

We provide coverage on a wide range of low-medium risk product classes on a claims – made basis. Claims-made coverage provides lower premiums, which is particularly beneficial to new companies in a start-up phase. We specialise in:

New products. Flexible liability coverage for manufacturers, sellers or distributors of a wide range of products. Claims-made coverage, ideal for smaller, start up companies. Worldwide coverage: We can help you place admitted covers in countries where it is a statutory requirement.

We can customize coverage for your particular needs such as:

Product Liability in combination with E&O and general liability. Product Liability with vendor extensions.

Download Proposal form   (DOC 435 KB)

Auto Parts Product Liability Application form   (DOC 435 KB)