What is the standard product liability clause?

A standard product liability clause in an insurance policy is designed to protect businesses from financial losses related to claims arising from the use, handling, or disposal of their products. This clause outlines the scope of coverage, the insurer’s obligations, and the policyholder’s responsibilities. Here’s a detailed look at the components and typical language found in a standard product liability clause:

1. Coverage Scope

The clause specifies the types of damages and losses that are covered, typically including:

• Bodily Injury: Physical injury or harm to a person caused by a defective or unsafe product.
• Property Damage: Damage to someone else’s property resulting from the use of a defective product.
• Legal Defense Costs: Costs associated with defending against product liability claims, including attorney fees and court costs.
  
  

2. Coverage Limits

The clause defines the maximum amount the insurer will pay for:

• Per Occurrence Limit: The maximum amount payable for all claims resulting from a single occurrence.
• Aggregate Limit: The total maximum amount payable for all claims during the policy period.
  
  

3. Policyholder Responsibilities

To maintain coverage, the policyholder must:

• Report Claims Promptly: Notify the insurer of any claims or potential claims as soon as possible.
• Provide Documentation: Supply necessary documentation and cooperate with the insurer’s investigation.
• Adhere to Safety Standards: Follow industry safety standards and regulations to minimize risks.
  
  

4. Exclusions

The clause lists specific exclusions where coverage does not apply, such as:

• Intentional Acts: Damages resulting from intentional wrongdoing or fraudulent activities.
• Product Recall Costs: Expenses associated with recalling a defective product.
• Warranty Breaches: Claims based solely on breaches of product warranties.
  
  

5. Conditions

Standard conditions might include:

• Policy Period: The time frame during which the coverage is effective.
• Geographical Limits: The geographical areas where the coverage applies.
• Subrogation: The insurer’s right to pursue recovery from third parties responsible for the loss.
  
  

Example of a Standard Product Liability Clause

Below is a simplified example of what a standard product liability clause might look like:

Product Liability Insurance Clause

Coverage Scope: This policy provides coverage for bodily injury and property damage arising out of the use, handling, or disposal of the insured’s products, subject to the terms and conditions outlined herein.

Coverage Limits:

• Per Occurrence Limit: $1,000,000
• Aggregate Limit: $2,000,000

Policyholder Responsibilities:

• The policyholder must report any claims or incidents that may lead to a claim within 30 days of becoming aware of them.
• The policyholder is required to provide all relevant documentation and cooperate fully with the insurer’s investigation.
• The policyholder must adhere to all applicable safety standards and regulations related to their products.

Exclusions: This policy does not cover:

• Damages arising from intentional acts or fraudulent activities by the policyholder.
• Costs associated with the recall of products.
• Claims based solely on breaches of product warranties.

Conditions:

• Policy Period: This coverage is effective from January 1, 2024, to December 31, 2024.
• Geographical Limits: Coverage is limited to claims arising within the United States.
• Subrogation: The insurer retains the right to pursue recovery from any third parties responsible for the loss.

A standard product liability clause is a crucial component of a product liability insurance policy. It defines the scope of coverage, outlines policyholder responsibilities, and specifies exclusions and conditions. Understanding this clause helps businesses ensure they have the necessary protection against potential claims arising from their products.