If you have products or services in the stream of commerce, you have a product liability exposure. If there is an event that causes bodily injury or property damage and your product or service is involved, you may have a claim. Unless your insurance has specifically excluded Products and completed operations as a covered cause of loss, your liability coverage will come into play.
Products liability is one of the most complex insurance issues. This article will give you an overview of the causes that can create a products liability claim.
Claim Causes
The beginning of a products liability claim is when the product enters the stream of commerce. When there is interaction between people and your product or service that creates property damage or bodily injury, there is the potential for a claim. The basis of these claims can fall into the following areas:
Defective construction or materials
Failure to comply with applicable codes and standards
Failure to investigate the sciences
Failure to warn the user
Failure of the product to perform as advertised
Improper design
Failure in the manufacturing process
We can take a look at each claim cause and consider the controls over this exposure.
Defective Construction or Materials
Selecting the right method and material of construction requires analysis of the intended use environment. The environment should consider temperature, moisture, exposure to UV rays, strength needed, weight limitations, size limitations and availability of the appropriate materials. If the product is not made of appropriate materials, it can fail. If you select the incorrect products or processes as part of your service delivery, you can create a potential loss.
Failure to apply with applicable codes and standards
Legal jurisdictions lag behind the model code organizations in legal adoption of codes. The litigation process system does not recognize this delay in adoption. At time of loss, you would like to avoid questions about why you did not use the most current codes and standards available. If there are no formal codes, there may be industry standards that apply. You want to meet the minimum expectations for product safety. Model codes and industry standards often are the best source of these minimum requirements.
What codes and standards were in effect when you introduced your product or service? If you have products and services that persist in the marketplace, you need to consider how code changes affect your product. Do you need to provide and update or revision? At the beginning of your product life were you using the most current set of standards, what changes have occurred?
Failing to investigate the science
This is understanding the unintended consequences related to your product or service. Do you understand how the chemicals used in your product or service interact with the materials at the proposed job site? Are the materials you use subject to degradation by the environment it will inhabit? Your product does not exist in a vacuum. Not recognizing the health and safety impacts of material choices is a danger you face. You may need to engage experts outside of your field to make this evaluation.
Failure to Warn the User
The Duty to Warn is worth of its own textbook, which actually exists. Giving users clear and actionable warning about hazards is a critical defense in a product liability case. This starts with the instruction manual and continues to the labels and warnings applied to the product. There are national standards for specific warnings and the hierarchy of wording, colors, and pictograms. Warnings must be useable by the intended user and placed in a manner to clearly communicate the hazard.
Failure to perform as advertised
Failure to perform as advertised is a function of the advertising and sales functions. Most of us are suspicious of claims that are superlative in nature. Yet despite the obvious downside of this type of advertising, they persist in the marketplace. Your marketing must also be appropriate for the intended user group. Making exaggerated claims as to capacity, endurance and efficacy can set the stage for a difficult claim to defend. Product liability comes into play when there is a property damage or bodily injury allegation. It is not a warranty coverage.
Improper Design
Improper design can manifest itself in across different elements of your product. Product liability does not mean a product warranty program. But a poorly designed product that has inherent hazards can cause a significant claim. Improper design can create extremely high defense costs. While you were not liable, the costs of defending you are part your insurance experience. Using a third party or peer review process can be an effective control.
Failure of manufacturers
The supply chain in commerce means that your product may be the sum of parts assembled from multiple sources. A change in part A can impact part B and create a safety hazard. Managing change within the supply chain is a critical control. Having proper contractual risk transfer and documentation of insurance availability from your suppliers is a defense mechanism that must be maintained. Selection and management of your supply chain partners is a key factor in controlling this loss cause.
Risk Control Efforts
The process to manage risk in products liability cases starts with evaluating your exposure to loss from each of the above listed causes. The having documented controls, design reviews, quality control, documentation reviews and follow up on products when they enter the marketplace are all needed. You are building a defensible position from which to respond to a claim. This is a team approach between your various departments, legal counsel, and insurance advisers.
The Driehaus Difference
We have experience in placing difficult product liability coverages. We know the data needs for quoting this coverage and what would generate risk control recommendations that affect your insurance placement. We can help you develop the defensible position for products liability. This can be internal processes, documentation as well as risk transfer from vendors and suppliers. Reach out to us on the internet at www.driehausins.com or call us at 513-977-6860.
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