Product Liability Insurance: Everything You Need to Know

Household, electronic, digital, automotive and other products are in great demand nowadays in India. Even software B2B products like ERP, CRM, and other types of management software have become a necessity for every business. The easy availability of different types of consumer products through online and offline means gives a huge opportunity to manufacturing businesses.

Nowadays, customers and clients are more aware about their rights and discretionary powers. Forums like consumer court, appellate court, human rights commission, etc. are easily available for everyone now. It has resulted in an exponential rise in the claims filed by consumers and clients. With the growing risks of claims, your businesses can suffer both financial and reputational losses if individual cases are not dealt prosperity. A product liability insurance policy helps you cover the damage caused to a third-party due to your products.

Table of Contents

What is product liability insurance?

Product liability insurance provides protection from the property or personal damages caused to a third-party by your products. The claims made by your clients or customers seeking compensation for the property or bodily damages are covered by this insurance policy.

Let’s suppose that you make heavy duty drilling machines for construction and infrastructure companies. Now, if any of your client’s property gets damaged or workers get injured due to your drilling machine, the company will file a lawsuit against you. If you have already taken product liability insurance, the compensation for the property damages and the medical expenses for the injured workers along with the legal costs will be paid by the product liability insurance companies. The same goes for companies that directly sell their products to customers.

Why is product liability insurance important for businesses?

Product liability insurance policies are useful for both large, medium, and small businesses. Large companies have a greater risk as their products are distributed over a large geographical area. Smaller companies should also get this insurance policy because they do not have sufficient capital to bear the legal and medical expenses along with the judgements or settlements made against your company.

The lawsuits or legal claims made by customers can cost in millions if the damage is caused due to a manufacturing defect or flaw in your products. If you buy product liability insurance, the expenses that are payable from your end are borne by the insurance provider. The best product liability insurance will usually cover these things:

Medical expenses payable for treating the injured third-party
Property damage compensation payable from your end
Legal costs incurred to defend your case
Settlements/judgements passed against your company by the court

A product liability insurance plan comes handy in most cases as the businesses don’t have sufficient resources to cover the claims made by their clients/customers. This type of insurance policy does not cover only the legal claims filed due to the manufacturing defect in the products. It also covers design defects, packaging defects, marketing defects, and other types of defects. If there is no proper warning given on the product package, that may also result in a product liability. Therefore, it makes sense to get a product liability insurance policy in today’s world.

Key Features of Product Liability Insurance

Coverage for design flaws: Design flaws in certain products can lead to bodily injury or property damage. The best product liability insurance plans cover the design flaws due to manufacturing mistakes.

Production defects: Any technical or specification-related defect inflicted during the production phase is covered by this policy. For example, if the installation of a faulty air conditioner resulted in the property damage due to fire, explosion, or any other reason, it will be covered under this type of insurance.

Wrong or improper guidelines or instructions: The property or bodily damage can also be due to the insufficient instructions or guidelines mentioned in the product guide or label.

Add on covers: Some product liability insurance plans also provide coverage to the vendors or suppliers that distribute or supply your products. It is called a limited vendor’s liability. However, most insurers require you to get it as a separate add-on cover.

Characteristics of Product Liability Insurance

CGL (Commercial General Liability) Coverage

CGL i.e. Commercial General Liability coverage works alongside product liability insurance as CGL provides limited coverage for product liabilities.

Damages due to death

If a third-party individual dies due to a defect or issue, the relative of the deceased could file a lawsuit against the company. The lawsuit could be filed seeking compensation for the economic damages or emotional distress caused by the incident. It may also include the punitive damages imposed by the court due to the manufacturer’s reckless action which would cost additional expenses to the company. A product liability insurance policy covers all three types of lawsuits.

Indemnity Limit

Indemnity limit means the sum insured issued to the policyholder as per the product liability insurance. AOA (Any One Accident) and AOY (Any One Year) are the two types of limit that can be applied during the policy tenure.

Types of Product Liability Insurance

Third-party Liability Cover: The property or bodily damages caused to the third-party is covered by the policy. The insured is the first-party who needs to subscribe to the policy.

Product Liability for Public: It covers the incidents that impact the consumers of your products.

Product Tampering Insurance: It covers the expenses when a third-person tampers or corrupts your products. Product recall, product restoration, loss of profits due to tampering, and similar expenses are covered by this policy.

Product Recall Expenses Insurance: It covers the costs associated with shipping, communication, media announcements, overtime pay, product destruction, etc. due to product recall.

Product Liability Retroactive Insurance: It provides coverage for the events or incidents that occurred during the retroactive timespans.

Product Liability Insurance Plans Available in India

Policy Name	Sum Insured	Policy Period	Key Features
Product Liability Insurance By HDFC ERGO	As per the product sold by your company	1 year	The cost of premium is determined according to the product types and the risks associated with them. It also depends on the jurisdiction in which your business is operating. A wider geographical coverage will require a higher coverage and will also increase the insurance premium. Accidental injury or death of a third-party along with the property damages are covered by this policy. It also covers the legal costs incurred while defending the insured. Product recalls, loss of goodwill and pure financial loss, repair or replacement costs, etc. are not covered by this policy. 24/7 support to handle your claims and queries Transparent settlement process Extensions like global extension and limited vendor’s liability extension can be availed along with the policy.
Product Liability Insurance by TATA AIG	As per your product and business requirements	1 year	Vendor’s liability cover can be added to the policy. The benefits of product liability insurance includes the retroactive period cover to cover the events occurred before taking the policy. Technical collaboration liability extension can be added to the coverage. Extensive global network with presence in 130+ jurisdictions Pure financial loss, product recalls, deliberate or intentional violation of statutory provision, and expenses incurred due to punitive damages, penalties, and fines are excluded from the policy coverage.
Product liability & Product Recall Insurance by Howden India	As per your requirements and product types	1 year	The premium will be decided as per the limits chosen, product turnover, type of products, and previous risk experience. Product recall costs are also covered by this policy. Anywho who sells, distributes, manufactures, or retails a product can avail this policy. Product guarantee and product tampering or contamination are excluded from this policy.
Product Liability Insurance by Probus	As per your requirements and product types	1 year	Applicable to manufacturers, retailers, suppliers, wholesalers, and distributors. Design flaws, manufacturing or production defects, and other types of property and bodily damages are covered by this policy. Can work with CGL (Commercial General Liability) Vendor’s liability can be availed as an add-on cover. Acts of dishonesty, intentional damage, liability created due to pollution, and violation of contractual obligations are excluded from the policy.
Product Liability Insurance by Future Generalli	As per your requirements and product type	1 year	Fast policy issuance and 24*7 customer support is provided Easy and faster settlement process Retroactive period benefit is included in the policy Liability and defence expenses are covered in this policy. Injuries sustained during a war, invasion, sex change treatments, congenital illnesses, and similar things are excluded from the policy coverage.

Inclusions & Exclusions Under Product Liability Insurance

What’s covered?

Accidental deaths or diseases/bodily injuries suffered by a third-party due to your products are covered under product liability insurance.

Accidental damage to any third-party’s property due to a defect in your products is covered by the insurer. The damage caused due to the faulty packaging, manufacturing issue, or wrongful instructions written on the product labels are also covered.

Medical bills, legal costs, and settlements/judgements passed against your favour are also covered by this policy.

If the water, land, or any tangible property of a third-party gets polluted due to your products, it is covered by the product liability insurance.

If you need to pay compensation to the claimant due to the court’s verdict, it is also covered under this policy. The legal costs incurred for representing and defending your case in the courtroom is also included in this coverage.

What’s not covered?

If your business fails to comply with the contractual obligations, then the insurance company will not approve your claims. Suppose that you claim for property damage due to fire but your organisation does not have any fire extinguishers. In this case, the claim will be rejected by the insurer.

Reputational loss, slander, and injuries caused due to anguish, and similar events are not covered under product liability insurance.

The financial losses incurred due to recalling products is not included in the policy coverage.

Fines, punitive or exemplary damages, and government penalties are not covered by this policy.

Injuries caused to your employees due to a product are usually not covered by this policy. It is so because these expenses are covered under a group insurance policy or worker’s compensation insurance plan.

If a person who is not your employee gets injured in your business premises, it is not covered by the product liability insurance.

The losses caused due to inventory are not covered by this type of policy.

Professional liability coverage is not included in this policy. The insurer has to get a separate professional liability insurance policy if they also provide services along with the products.

Products that were supplied before getting the product liability insurance are also not covered.

The repair or replacement expenses incurred to the insurer is also not covered by this policy. The insurer has to get a product recall add-on cover to get coverage for these types of expenses.

Who needs product liability insurance?

Anyone who sells, distributes, or supplies products can get a product liability insurance policy. Manufacturers, retailers, distributors, and wholesale suppliers of all types can be insured by this policy. The types of businesses that tend to get the product liability insurance are highlighted below:

Restaurants – To cover the legal claims made by the customers after consuming the food or beverages from the restaurant.
Online sellers – Those businesses that list their products on eCommerce portals like Amazon, eBay, Flipkart, etc. can also get this type of insurance.
Stores – The stores that sell homemade products or distribute products from the manufacturer can also get this insurance policy.
Pet supply stores – To get coverage for the legal claims filed by the pet owners.
Wholesalers – The wholesalers who sell items at wholesale rates to both commercial and retail buyers can get a product liability insurance policy.
Retailers – The retailers who sell retail products in their stores or run a supply chain store can get this policy.
Manufacturers – D2C (Direct To Consumer) brands can buy product liability insurance to get coverage for the claims made by their end users.
Other types of businesses – Construction companies, plumbing companies, and other businesses can also get this insurance. It will provide them coverage if one of their clients files a case for property or bodily damage caused due to their work.

Things to consider while buying product liability insurance

Select the right coverage: Businesses usually fail to evaluate the different types of product liabilities that can affect their reputation and finances. They usually fall for cheap policies that provide insufficient coverage. Choosing the right coverage limit will ensure that you do not pay anything from your pocket.

Product type: Certain products can lead to higher risks or liabilities than others. For instance, a company that sells food products or beverages stands a higher risk of getting sued than a company that sells bedding accessories. Therefore, companies should consider their product type to get the right kind of coverage.

Supply chain position: Retailers, distributors, and manufacturers can buy product liability insurance. However, manufacturers will need to pay a higher premium than a distributor or retailer because they are placed at a higher position in the supply chain.

Coverage territory: Coverage territory signifies the geographical extension of an insurance policy. For example, if your products can be used in any part of the world, it is better to get a policy that provides worldwide coverage.

Location: Small and medium-sized businesses that sell their products in a specific region or location should choose coverage after evaluating all the risks properly. If it is a litigious region or location, it is better to go for a higher coverage.

Specific limits: Some insurance companies may require you to decide the sub limits for each type of risk. For instance, there could be a separate sub limit for the legal expenses, settlement costs, and medical insurance in a comprehensive product liability insurance policy.

When can you raise product liability insurance claims?

The following steps can be followed while filing product liability insurance claims:

Step 1: Read the policy documents carefully

Before raising a claim, read the policy documents offered by the insurer at the time of policy subscription. These documents will provide you with all the details regarding how you should raise a claim. The settlement process will also be explained properly in these documents.

Step 2: Inform the insurance company immediately

Inform the insurance provider immediately when a third-party raises a claim against you. Ideally, you should inform the insurer as soon as the events resulting in a claim occur.

Step 3: Initiate the claim process

After informing the insurer, you should initiate the claim process immediately. Usually, a claim form is to be submitted along with the necessary documents. If there are instances like robbery or death, you must also inform the police and get the FIR registered.

Step 4: Collect the evidences

Evidences like photographs of the damage should be collected and provided to the supervisor who is appointed by the insurance company. The supervisor will investigate the case and examine all the evidence and documents submitted by you. If he finds them satisfactory, he will approve the product liability insurance claim and finalise the compensation amount.

Step 5: Claim settlement

Once all these steps are completed, you just have to follow up with the insurer regularly till it gets settled.

Documents required for the claim process

The following documents are required to support your claim:

Claim form that is duly filled with all the details

FIR, medical reports, and other supporting documents that validate your claim

All the information regarding your business should be provided to the insurer.

If there are damages to the property, you must collect enough evidence and photographs of the damage.

A surveyor report establishing the nature of the damage and its severity should be submitted to the insurer.

The photocopies of company licences, permits, and certifications should also be provided to the insurer.