Blog question: what is covered under a liability policy when it comes to a product failure?
Other than questions on business interruption, one of the most common questions I get asked of me at conferences, functions and here on the blog centres around the issue of product liability. Many people think that product liability insurance covers the product. It does not. It covers liability arising from a product, that is damage or personal injury flowing from a product.
The following is one such question and my explanation of what is and is not covered:
Just wished to double check a Liability scenario that a client is faced with:
Insured is a Transport Company as well as a Bricks & Pavers supplier.
Insured supplied some pavers for pool surrounds in October 2011 (supplied to pool construction co)
Insured has been advised (this year) that a number of the pavers are experiencing “salt attack” and that the pavers were sold on the basis of being salt resistant. The supplier is out of business.
Insured is being asked to rectify the issue – the actual main cost is not the pavers that have been affected but as supplier out of business having to replace all at expected cost of approx $4,000.
Insured has a XYZ Cluster [Insurer and Broker Group name withheld] Business package.
Liability section exclusions –
7. Damage to Products
14. Loss of Use
16. Product Guarantee
Come into play – just confirming thoughts that there is nothing further we are missing that might write back any potential cover.
Thanks and Regards
Chris [Surname and email provided]
On what you have told me there is no resultant damage or injury just the failure of the product. The cost of removing and relaying the pavers is part of the cost of replacing the product.
A combined public and products liability policy is not a product guarantee policy nor is it a product recall policy.
Even a product recall policy is not going to cover the cost of the recall if there has been no injury or likely injury to a third party. In this case it is simply a discolouration issue.
What we do not know is there some other cause that has effected the pavers or if there has been no other issues. The problem could be incorrect cleaning, harsh chemicals, an unusual location, problems with a water leak from the pool etc.
When you say there supplier is out of business I now understand that it is the actual manufacturer of the pavers. There is a message here for every retailer and wholesaler here. The products that they sell and or install has to be a good quality from a reputable supplier as at the end of the day they may become liable with no recourse available to them.
This is a serious risk management issue we see in lots of products such as electrical cabling and other building materials that are not to code, asbestos in imported products, the list goes on. I cannot stress the risk is real businesses face when they take on a new product.
If the manufacturer were to be still around and there is a genuine fault in the product, then if your client was to replace the pavers, then a) the manufacturer should supply fresh products and b) if reputable met the cost of lifting and relaying.
The trouble even then is for $4,000 if the manufacturer says no the cost of fighting it is going to be greater than the amount trying to get back. This of course is all academic as the supplier is no longer in existence.
So summing up, I see the cost of replacing the damage product includes the cost of lifting and relaying the product. This is not covered by the policy for the reasons explained. From what you have advised there is no resultant damage to any other property.
Sorry I do not have better news but this is not just a xyz or cluster thing but would be the same for virtually every public and products liability
policy sold in Australia.
Tomorrow I will post an article on how just to clean bricks or pavers which has the white effervescent powder on them. I shared this advice with Chris as well.