Product liability cover will typically provide an indemnity against sums which the insured becomes liable to pay as compensation for accidental bodily injury or illness to persons, or for accidentally damaged property, caused by defects in goods sold, supplied or repaired by it.
Product liability is based on negligence and on the Products Liability Directive, which was given effect in Ireland by the Liability for Defective Products Act, 1991.
There is no uniform cover. Policy wording and cover may vary from case to case. The policy may cover the supply of goods in accordance with the contract, in breach of contract or may include that which is wholly in breach of and even outside of the scope of what is agreed to be supplied.
Policies may be expressed to cover liability which arises in consequence of goods being defective. In other cases, the policy may simply refer to liability arising from the goods. It may cover the delivery or supply of incorrect goods, which cause injury and damage.
Many policies provide worldwide cover. There may be restrictions in respect of supply in certain jurisdictions (in some case the USA).
Policies will not generally apply to pure breaches of contract. Damage comprising defective goods in the sense that they are less valuable than those which were contracted to be sold or less useful would not be covered.
Likewise, breaches in conformity in relation to the goods would not be insured. Pure economic loss is not covered. Generally, the cost of repairing, replacing or recalling goods is not covered. It may be covered under particular policies.
Policies commonly exclude damage to property owned or controlled by the insured, liability arising from a contract which would not otherwise arise, the cost of replacing products, recall or remedial work. It will usually exclude liability due to negligent design or advice. These latter risks are appropriate to a professional indemnity policy.
The liability does not cover breach of contract in itself, even where personal injury or damage arises, other than by reason of the product supplied. As with most insurance cover, it covers direct loss only. It does not cover so-called consequential loss.
The cost of repair or replacement of goods is not covered. It covers personal injury and damage to other property. Economic loss may be covered exceptionally, where there a relationship of proximity between producer and purchaser.
The limit may be measured by reference to claims within the period, rather than to any one incidence or occurrence. The purpose to prevent an avalanche of claims relating to a single incident. This has obvious disadvantages for the insured.
Generally, the cover will not extend to
- property owned or controlled by the insured;
- liability undertaken by contract, but not otherwise arising;
- the cost of repairing the defective works;
- the cost of recall;
- liability airing form defective design and advice, formula et cetera
These limitations may be applicable to a manufacturer and not applicable to distributors and retailers. Design and advisory risk are usually covered by professional indemnity insurance.
Products liability insurance may be on the basis of claims made or occurrences within the policy period. In the latter case, the policy in force on the date of the claim is the policy that applies. In the former case, the date of loss or damage determines the liability.
There has been a tendency on the part of insurers to move to a “claims made” basis. Claims made policies oblige the insured to notify claims and circumstances likely to give rise to a claim.
Policies will have an indemnity limit. This may be limited with the reference to a particular occurrence, incident or accident. This may represent a significant exclusion where a single act has multiple consequences. The application of the policy will be a matter of interpretation of the contract in the circumstances.
Policies are commonly on a claims made basis. In this case, the policy covers claims and circumstances notified during the currency of the policy. The principle behind the claims made basis policy, is to align current claims experience with the policy.
Where there is a long delay between the relevant event and the manifestation of claim, it may find it difficult to price the risk. The claims made basis requires notice to be given of any circumstances which are likely to give rise to an event.
A claim made will generally require some intimation or communication from a potential claimant in relation to a matter which could be litigation against the insured.