Product Liability: Protecting the Assets of Your Company

For any company or corporate executive team, responding to an unexpected liability-insurance claim is not the time to find out that the business' coverage is inadequate.

"We've had situations where someone was looking and they wish they found us three months ago," said Bob Corwin, senior vice president of Alliant Insurance Services, an insurance consulting and brokerage service based in Irvine, California.

Added Corwin's partner, Franco Ganino, also a senior vice president at Alliant, "The ultimate goal is to provide defense should someone allege that their property has been damaged or they've been injured in some way through the use of your product."

They made these statements during a recent webinar (the video can be viewed at https://learning.sema.org/on-demand-
video) hosted by SEMA's Motorsports Parts Manufacturers Council (MPMC).

Corwin and Ganino explained that Alliant Insurance Services does not sell insurance, but acts as a consultant for SEMA members.

"We're here to make sure SEMA members are protected properly," said Corwin.

Starting with the basics, he and Ganino described product liability insurance as life insurance for a manufacturing company. It will protect a company from financial loss arising out of claims because it transfers the burden from the corporation to the insurance company.

"Product liability is a critical element of transferring risk away from a manufacturer's balance sheet," said Ganino. It will pay for defense costs should there be a need to hire an attorney and will indemnify a third party for damages if needed.

Technically speaking, product liability coverage is a subset of a general liability policy. It can be purchased individually, but most often, it's part of a package. Part of the decision to purchase coverage can include determining that your company doesn't need it. There are three paths a company can take. "You can transfer the risk by buying insurance," said Ganino. "You can avoid the risk by not making the product, and the last one is to assume the risk."

A typical liability policy generally covers a company's aggregate, products/completed, operations aggregate, personal and advertising injury, per occurrence, fire legal liability and medical payment.

General policy limits start at $1 million with policy limits of $2 million for general aggregate; $2 million for products/completed, operations aggregate; $1 million for personal and advertising injury; $1 million per occurrence; $1 million for fire legal liability; and $5,000 for medical payments.

When it comes to assessing the risks and how much insurance is needed, the overall value of the company's assets and the level of risk based on the products are key considerations. For example, if a company uses a wholesale distributor for its products, the manufacturer will want to be protected if someone buys through the distributor and files a claim.

When shopping for liability insurance, a company should be aware of endorsements that exclude specific parts or uses of products. For example, an insurance policy could be considered to be "full coverage," but it has an endorsement in the fine print for safety equipment or tires. If the company makes either of these two items and there's a claim, there would be no coverage because of the endorsements.

Worldwide coverage is required for companies that do business outside their home country. "If you're going to carry a distribution center in Germany, at that point you need to work with an agent that allows you to have defense in that country's legal system," said Ganino.

Obviously, the goal is to never have to use product liability insurance, but that doesn't mean it shouldn't be taken seriously. A liability policy that isn't tailored to your company and its products won't help when a claim is filed, so do your homework and make sure the broker and the coverage are what your company needs.

"Make sure your agent has oil in his or her DNA," advised Ganino.