Product Liability Insurance Explained

Businesses from all industries should think realistically about the prospect of being sued, as it is becoming more common in the modern world. Having product liability insurance is one way to protect the business from claims which relate to the sale or manufacture of products to the public (such as food, medicines or other consumables).

Having insurance like this will cover the business liability should a buyer or bystander suffer losses or injuries based on product malfunction or based on a product defect. One such example is when a product is defective but the manufacturer fails to alert buyers. In such cases, the manufacturer and the seller will be liable for the effects. There have been some famous cases in past decades when automobile manufacturers faced a slew of claims due to the safety issues with the vehicle.

Many resellers do not take out coverage as they assume they cannot be held liable, but this is not the case. Anyone selling a product, retailing, and those “middlemen” can be brought into a lawsuit if it brought by a customer. Simply claiming that they are not at fault, as they did not manufacturer of the product, will not get them out of legal troubles.

There is a term known as “stream of commerce” liability, which means that any individual or business involved in the placement of the product on the market can be held liable for any damages which befall the customer or end user of the product.

Companies who provide products to the public need to have product liability insurance. There are sometimes cases when this coverage is present in general business insurance, but this is not always the case. As such, companies should speak to their insurance companies to check for complete coverage. This is the reason that having a good working relationship with an insurance professional is essential in business.

When looking for premiums to cover the business, there are many aspects and facets involved. The premium will be based on the type of the product sold by the business, as well as the role played by the insurer in the entire business process. Besides this, the volume of sales will be a factor as this has a major impact on the likelihood of claims from the end users.

Businesses should never try to cut corners when taking out insurance, or give false figures, as this will simply backfire and void the entire premium. It is vital that companies do not under-report the volume of sales or only report a small number.

Likewise, it is very important that the actual products being sold are correctly categorized and insured under the correct headings. Different products come with a greater premium because of the higher risk involved and the potential for damages being claimed.

Having this form of insurance is vital for businesses to stay afloat and deal with any claims that are brought by the general public. Failure to identify the correct premium can be very costly.

About Commercial Umbrella Insurance

Commercial umbrella insurance is used to protect a business when an accident occurs and existing liability policies for insurance is not able to cover all expenses related to the claim. Standard types of liability coverage for businesses can take care of general situations. However, when serious situations happen, umbrella insurance makes sure that a business is fully protected. Accidents are bound to happen and people are known to sue. Below are some possibilities that are involved with business accidents:

  • A company party goes overboard that results in a number of damages and injuries
  • The building of a business experiences a leakage of carbon monoxide resulting in multiple deaths or injuries
  • A company is accused of not rendering professional and appropriate services

These policies pick up from where the business general liability, auto liability and any other types of liability coverage end. This insurance policy is a smart and inexpensive method in providing additional coverage against property damage and/or bodily injuries.

An example of a claim:

If a business has a policy that covers the business for a million dollars and the business is sued for around 1.5 million dollars, the umbrella coverage will pay out the outstanding amount of 500,000 dollars. This saves the business from having to come up with the outstanding amount from business profits.

Customizing Your Policy

Every business is different. Professional practices like law firms, veterinary offices and doctors rooms operate differently from business locations, such as, an auto body shop. The respective liability needs for each business will also be different. Umbrella insurance providers offer tailor made policies in order to meet up with the requirements of each business.

Business owners of auto body outlets may require a policy that will offer additional coverage for the garage liability, while a law firm that focuses on client entertainment may need additional limits on liquor liability. Businesses are encouraged to ask for a quote that will be customized in order to meet up with their specific needs of the business.

How Umbrella Insurance Operates

Commercial umbrella insurance policies are used for two purposes. It is used to expand on the current limit a business already has for existing or for underlying types of liability policies. If the general policy for liability offers a coverage of $1 million for each occurrence or cover for a total of $2 million. The umbrella policy allows the business to expand the limits to around $3 million for each occurrence along with a $4 million average and an umbrella policy of $2 million.

The second purpose involves expanding coverage for items that the underlying policy will not cover. For example if a liability policy for auto only covers accidents that occur in specific areas, the umbrella policy can be used to expand on the coverage area.

Business owners interested in umbrella insurance should provide their chosen umbrella insurance providers with operational and financial details of the business when obtaining a quote. The insurance provider will need to know about the business along with the current insurance policies that the business has.

D&O Insurance To Cover Director Liability

D&O or Directors and Officers insurance is personal liability insurance specifically designed to cover senior executives and directors of a company from liability arising from potential lawsuits against them.

The cost of the insurance is usually covered by the company and will cover the costs, in full or in part, of lawsuits and judgments that arise from instances such as poor management decisions, shareholder grievances, employee dismissals and other acts that have been committed in good faith by the insured person. D&O liability insurance does not cover criminal offenses. If it did, odds are there would be a lot more corporate criminal activity than there already is.

Why is D&O Liability Insurance Necessary?

Directors and senior officers constantly walk a fine line between making complex and tough decisions, often with limited information and time constraints, that can have huge impacts, for example in acquisition or merger situations. When mistakes are made by individuals in management positions they can be held personally liable for their actions. Companies take out D&O liability insurance to protect the personal assets of the company as well as those of its directors and senior officers as individuals. It also provides the company with reimbursement when indemnifying its officers and directors. This type of liability insurance covers settlements, legal defense costs and awards on defending officers and directors from valid claims.

Put quite simply, managers do make mistakes and there is no guarantee that a company will be able to carry the heavy financial burden of defense costs involved in damages awards or prolonged legal proceedings, and may not have the financial resources to indemnify their officers or directors in the event of claims. As more companies operate on a multinational level their operations, trading partners and investors are in different jurisdictions located all over the world.

This involves directors and officers in the increased complexity of operating with different government bodies, compliance regulations and risk management in many locations. No matter how strong their business acumen or how prudently they act, this puts them in the firing line where decisions taken can result in substantial losses to their company or a third party. Because individuals in companies can be held personally liable they may be involved in litigation that can become extremely costly and prolonged.

The fundamental tasks of senior management are to make decisions, and individuals should be given the freedom to make those decisions in good faith without fear of being financially ruined by them. D&O insurance makes the risks of taking decisions transparent and manageable by supporting good corporate governance. This type of insurance offers some degree of financial security and in cases of company bankruptcy, it is often one of the few assets that provides a company, its shareholders or creditors a way to recapture a part of the loss.

Typical Claimants on D&O Policies

As director liability expands, Directors and Officers insurance claimants increase. Classic examples of typical claimants include:

– Shareholders
– Investors
– Unions
– Consumer groups
– Customers
– Competitors
– Governments
– Contractors

Some Main Exclusions on a D&O Policy include the following:

– Fraud or dishonesty
– Copyright
– Professional indemnity
– Illegal profits/gains
– Injury
– Sickness
– Damage to property
– Pensions
– Questionable payments
– Deliberate acts
– Bodily injury

D&O insurance has become a regular part of risk management in large, multinational companies, but is also becoming essential for other organizations, publicly traded or not, with potential D&O exposure. There has been an increased demand for D&O liability insurance for small and medium sized organizations although penetration is still quite low.