Specialty Product Liability Insurance

Specialty Product Liability Insurance is a type of insurance that provides coverage for companies that manufacture, distribute, or sell specialty products. These products can include anything from medical devices and equipment to consumer electronics and industrial machinery. The purpose of this insurance is to protect the company from financial losses in the event that one of their products causes harm to a consumer or third party.

When a product defect or malfunction causes injury or damage, the manufacturer, distributor, or seller can be held liable for any resulting damages. Specialty Product Liability Insurance helps to protect these companies from these financial losses by covering the cost of legal fees, settlements, and judgments. This type of insurance is essential for companies that produce or sell high-risk products, such as medical devices or equipment, as these products have the potential to cause significant harm if they malfunction or are defectively designed.

Specialty Product Liability Insurance is typically purchased as an add-on to a general liability policy, but it can also be purchased as a stand-alone policy. This type of insurance is tailored to the specific needs of the company and the products they produce or sell. The coverage limits, exclusions, and conditions are all tailored to the specific risks associated with the products and the company's operations.

In order to obtain Specialty Product Liability Insurance, companies must provide detailed information about their products, production processes, and safety measures. This information is used to assess the risks associated with the products and determine the appropriate coverage limits and exclusions. Companies must also demonstrate that they have implemented appropriate safety measures and have a quality control system in place to ensure that their products meet industry standards.

Specialty Product Liability Insurance is important for companies that produce or sell high-risk products, as it helps to protect them from financial losses in the event that one of their products causes harm. This type of insurance is tailored to the specific needs of the company and the products they produce or sell, and it is essential for companies that want to protect themselves from the financial consequences of product defects or malfunctions.

Products liability coverage for aircraft manufacturers and aircraft products dealers is difficult to place. Loss potential is significant because of the catastrophic consequences when a product used in an aircraft fails in flight. Fixed based operators and others who repair and replace aircraft parts may also need this coverage.

Companies that manufacture, test, distribute, and sell medical, biological, pharmaceutical, and other products approved by the Food and Drug Administration (FDA) or other regulatory bodies around the world are vulnerable to a variety of product liability risks. These risks are unique to their industries and require very specialized insurance coverage. These companies also recruit human test participants for trial across the globe and coverage is difficult to understand and place.

Product contamination coverage applies when an individual has contaminated a product or has threatened to do so. It covers related costs, such as necessary destruction of inventory, lost profits, business interruption, product recall and product rehabilitation. When a product contamination case arises, crisis management and loss prevention firms can be called in to help the insured reduce chances that it will continue to be a target and minimize the damage that might arise. Coverage does not apply to third-party liability or extortion payments. Premiums are based on the size of the business and an assessment of the exposures.

This is a highly specialized performance surety or guaranty insurance that was originally designed for investors or manufacturers of alternative energy sources. It provides financial protection if a system does not perform as engineered or designed. This type of insurance encourages investment and development of both alternative energy sources and other types of manufactured products.

Warranties often specify a product's expected life and offer to replace, repair, or reimburse the consumer for defective parts or workmanship. The business that makes the product or provides the service can then use the written warranty to promote customer acceptance and increase sales. The warranties can be insured as an alternative to covering future warranty claims. Customers are often more willing to purchase a product or service that has a warranty backed by insurance. Common examples of products or services that have written warranties include household appliances, solar heating equipment, auto rust-proofing services, auto accessories, auto muffler and transmission services, burglar alarms, and camera equipment. The insured's liability for the warranty can be covered through guaranty bonds, contractual liability coverage, or commercial inland marine coverage forms.

Certain types of manufactured products have particularly hazardous products liability exposures. Drugs, cosmetics, chemicals, and ladders are some examples. Many domestic insurance companies write insurance on these classes of business on only a very limited basis. In addition, very few standard markets are interested in insuring certain types of new products, particularly drugs. Specialized markets are available to write this coverage that involves providing a complete description of the product along with complete chemical and/or engineering reports. Businesses engaged in manufacturing and installing solar-heating equipment and burglar and fire alarm equipment have a very real need for this coverage.

This is a form of extra expense coverage instead of legal liability coverage. Coverage applies to measurable expenses involved in withdrawing the product, including cost of communications, shipping charges, radio and television announcements, newspaper advertisements, costs of hiring additional personnel, paying overtime to regular employees, and costs to destroy the product, if necessary. This coverage applies to only those expenses directly related to withdrawing a suspected defective product from the market. In most cases, coverage is written subject to both deductibles and coinsurance.

The authority to establish risk retention groups and purchasing groups stems from federal legislation passed in 1986 known as the Liability Risk Retention Act. It permits groups to form risk retention programs or purchasing groups for all types of liability insurance. The group must be chartered in one state, its state of domicile, but is authorized to operate in all states and the District of Columbia. Risk retention groups are exempt from most state regulations and do not contribute to state guaranty funds. A number of captive insurers, surplus lines insurers and brokers, and risk management consultants participate in operating risk retention groups.

Following are some examples of Product Liability Insurance claims and the corresponding insurance coverages that can help pay for them:

1. Defective Sporting Equipment: Let's say a company manufactures rock climbing harnesses, and a faulty harness results in a severe injury to a customer. The customer sues the company for damages. Specialty Product Liability Insurance can help cover the costs of the lawsuit, including legal fees, settlement costs, or any awarded damages. This insurance can potentially save the company from bankruptcy due to the expensive legal proceedings and potential payout.

2. Food Contamination: Suppose a restaurant uses a specific brand of peanut butter that, unbeknownst to them, was contaminated at the manufacturing plant, leading to an outbreak of food poisoning among their customers. The restaurant and the peanut butter manufacturer could both be sued for damages. The manufacturer's Specialty Product Liability Insurance would cover the costs of legal defense, settlements, and any damages awarded in court, protecting the business from severe financial distress.

3. Automotive Part Failure: An auto parts manufacturer produces brakes that are found to be faulty, leading to several car accidents. Victims of these accidents could sue the manufacturer for their injuries and damages. Specialty Product Liability Insurance can provide coverage for the manufacturer, including the costs of legal defense and any damages or settlements resulting from the lawsuit.

4. Medication Side Effects: A pharmaceutical company develops a new drug that, after being released on the market, is discovered to have severe side effects not previously identified during testing. Patients suffering from these side effects could sue the company for damages. The company's Specialty Product Liability Insurance could cover the costs of these lawsuits, including legal defense, settlements, and any court-awarded damages.

5. Defective Electronics: A company produces a line of smartphones that have a manufacturing defect causing them to overheat and potentially cause fires. If a fire occurs causing damage to a customer's property or personal injury, they could sue the company for compensation. Specialty Product Liability Insurance would help the company cover the costs associated with the lawsuit, including legal defense costs, settlement amounts, and any damages awarded by a court.