Product Liability

What is Product Liability Insurance?
Product Liability Insurance protects the business whether in production/manufacturing sector or in sale/distribution sector for any product – food, medicine or other from the legal liability claims lodged for the defects of the product and resultant injuries/damages to public there from.
A Product Liability claim can arise under any of three situations described under:
A] Manufacturing or Production Flaws- A claim that some part of the production process created an unreasonably unsafe defect in the resulting product. Recent claims against Chinese manufacturers regarding the presence of dangerous chemicals in their products are an example of this type of claim. Another variation of Product Liability Insurance for this segment is known as “Product Recall Insurance”.
B] Design Defect- A claim that the design of the product is inherently unsafe. The most memorable example is the series of Pinto car cases against Ford in the 1970's.
C] Defective Warnings or Instructions- The claim that the product was not properly . labeled or had insufficient warnings for the consumer to understand the risk.
The damages awarded in these claims may include medical costs, compensatory damages, economic damages, and, in some instances, attorneys' fees, costs and punitive damages.

What is the benefit of this Insurance?
If you are a manufacturer, distributor, supplier, retailer, vendor, wholesaler or any other party who makes products available to the public, then you necessarily need to opt for Product Liability insurance. Under this, if your product proves to be dangerous or defective and it causes injury to a person or property, then this insurance cover is just what you need. Any Law Court Award for these damages can be taken care of under this Insurance with defence cost. So it is of immense importance for any manufacturer/ seller of any product; more for food products, medicines, and any other products that may lead to such situation. It becomes all the more needed if the product is exported out of India.

Who is it for?
As described above, this Insurance is needed by all producer / distributor / seller / exporter for such sensitive products that may give rise to law suit against them for product deficiency and resultant damage to person or property.

Approximate cost of this Insurance?
Again it depends on various factors and the rate is charged as percentage to the amount selected for the annual limit(Sum Insured) of such Product Liability. The premiums vary according to the limits purchased, the turnover relative to the product, the type of product being covered and the previous risk experience. In view of the legal environment, covers in respect of North America will carry an increased premium. However, for having some idea, generally, premium rates vary from 1% to 1.75% which means for a Product Liability Insurance of Rs.100 Crs, the premium will be Rs.1 Cr to 1.75 Crs.

Claim procedures of this Insurance?
Like any other Liability Insurance, it is also a “Claim Made” Insurance which means unless there is a legal suit against the Insured and Award is given by the concerned law court for any product deficiency covered under the Policy, there is no claim under this Insurance. In India, Product/Products Liability is governed by undermentioned laws:
a) The Consumer Protection Act, 1986
b) The Sales of Goods Act, 1930
c) The Monopolies and Restrictive Trade Practices Act, 1969 (hereinafter referred to as the “MRTP Act”)
d) The law of Torts.
e) special statues pertaining to specific goods
f) The Foods Adulteration Act, 1954
g) The Food Safety and Standards Act, 2006
h) The Drug & Cosmetics Act, 1940
i) The Indian Penal Code, 1860
j) The Standards of Weights and Measures Act, 1956
k) The Agricultural Produce (Grading and Marking) Act, 1937 for marking and grading of commodities like vegetables, butter, etc.
l) The Indian Standards Institution (Certification Marks) Act , 1952 to formulate a number of standards for different products by ISI and
m) The Bureau of Indian Standards Act , 1986