Anyone who make products available to the public runs the risk of being held responsible for the injuries those products cause. Claims may result from a defect in the product, a deficiency in the packaging, inadequate or wrong labelling on any information relating to the product. Governments all over the world are enacting legislations in this sphere and taking steps for vigorous enforcement of the same. In the Indian context, The Consumer Protection Bill, 2018 which is passed by Lok Sabha in December 2018 makes detailed provisions relating to relating to product liability.

Defects in the product may be due to

  • Manufacturing defect
  • Design defect
  • Faulty packing
  • Incorrect instructions as to the use of the product

The purpose of the product liability Insurance is to indemnify the manufacturer, distributor, wholesaler, and retailer against claims of any third party bodily injury/ property damage resulting from the use or consumption of product manufactured, sold, distributed or handled.

Product liability insurance offers indemnity in respect of claims from third parties arising
out of defects resulting in

  • Personal Injury:  Bodily injury ( including death and illness) , disability, shock, fright, mental anguish or mental injury
  • Property damage: Physical injury or destruction of tangible property including the loss of use thereof

The policy provides indemnity in respect of:

  • Legal costs in defending proceedings brought against them alleging wrongful acts
  • Any damages awarded to the claimants including out of court settlements

Product Recall Expenses: It is possible to cover product recall expenses under product liability policy as an extension or as a  separate policy. This covers expenses associated with recalling a product from the market. A product recall is a request to return to the maker, a product or a batch of products usually over safety concerns or design defects or labelling errors that are likely cause personal injury or property damage to a third party or damage reputation to the manufacturer.

Product recall expenses mean the reasonable and necessary costs associated with recalling a product. Indicative list of costs is given below.

  • Communications to notify  such as radio and television announcements and printed advertisements;
  • Shipping cost from any purchaser, distributor or user to the place or places designated
  • Extra expense to rent additional warehouse or storage space
  • The cost to hire additional persons other than the regular employees to assist in the process

As in the case of other insurance policies, this policy also has extensions and exclusions which need to be clearly understood before the commencement of cover so as to avoid contract unpredictability.

(The information contained and ideas expressed herein represent only a general overview of subject covered. It is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insurance buyers should consult their insurance and legal advisers regarding specific coverage and/or legal issues)