Insurance Lawyers: Coverage Needs for Product Manufacturers Run the Gamut

Though general liability insurance is what Insurance Recovery & Advisory partner Joseph Jean calls a “basic backbone policy,” he advises that companies look into adding product liability or completed operations amendments that protect them once the products are on the market. Jean also says product makers should be familiar with how the laws in their state view arguments from the insurers’ side.

“To avoid or limit coverage, insurers’ primary argument has been that a product manufacturer that makes a defective product can’t satisfy the ‘occurrence’ definition because they argue defective products—and the damage they cause—aren’t accidents,” he said.

Insurance partner Alexander Hardiman also cautioned product manufacturers to obtain a product recall policy, as many general liability policies don’t cover the massive costs that can result from a recall, whether it’s government-mandated or voluntary.

“Because there have been an increasing number of product-related recalls, a manufacturer should be aware that product recall is usually excluded from a general liability policy and so should check to see if they can get product recall coverage endorsed onto a general liability policy or can purchase a standalone product recall policy,” Hardiman said. “There are more limits available for product recall insurance than in the past.”

Hardiman added that first-party property coverage can protect manufacturers from the costs of business interruption, which he says is “one of the biggest risks” they face. And he cautions that companies working with third-party suppliers should make sure their policy also contains contingent business interruption coverage.

“Anyone in [manufacturing] would want to look carefully at their business interruption coverage and contingent business interruption coverage,” he said. “That’s particularly the case for companies that are supplied from abroad where the risk to an interruption of the supply chain may be great.”

Additionally, Jean and Hardiman told Law360 that directors and officers coverage is crucial, as it can protect executives from shareholder suits or government and criminal investigations when a product issue results in a decline in stock prices, and it comes into play for companies with foreign operations that may be exposed to the Foreign Corrupt Practices Act.