Just like an individual runs risk of life and health, a company faces risks related to various kinds of liabilities. The recent fiasco of Maggie in India is a case in point. This may be perhaps one of the most highlighted cases from the Foods and Beverages sector; there are many instances in the other industries which call for the need of general insurance.
Automobile sector often recalls its products from the market, owing to some defective parts or technological glitches. Some time ago, even telecom companies recalled their products. Nokia, for instance, started a replacement drive for a certain make of its mobile phone batteries.
Many times, companies from the technology sector run the risks of product failure after getting into the markets.
Considering the significance of managing several such risks arising out of product liability, general insurance companies in India offer a range of plans to companies. The product liability policies generally cover consumer claims arising out of damages caused due to manufacturing defect, faulty design, insufficient explanation of warnings and safety related instructions.
However, there are a number of exclusions not being covered under such general insurance plans. This includes the following:
• Financial losses whatsoever: Understandably, no insurance company would cover losses due to mis-management, changes in regulatory environment, etc.
• Costs incurred towards repairs or modifications of a product: If a company incurs cost towards any repairs or changes in the product, it does not qualify for any insurance coverage
• Damage caused due to manufacturer’s negligence and proven deviation from the normal manufacturing processes
• Deliberate or willful non-compliance with statutory framework
• Penalties by regulators or government authorities
• Consequences of war, insurgency or any acts of terrorism
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Generally, such insurance policies need to be renewed annually. There can be a provision of terminating the policy within the policy period, by producing an advance notice of 30 days or as specified in the policy document.
With the reforms in the insurance sector in India, the premium rates for a large number of products have gone down to a great extent. Also, there is far more transparency in the sector and policy holders can expect fair treatment of their cases.
Issues and challenges
Experts from the insurance industry believe that the scope of product liability is so vast that it becomes difficult to ascertain as to in which case the manufacturer is liable to pay for the damages and in which the consumer should be held responsible for the misuse or negligence.
It is also believed that while strict product liability laws regulate manufacturers’ operations and urge them to maintain certain levels of standards in manufacturing and business operations, some sections of the industry argue that it may prove to be counter-productive as the manufacturers may not pay attention to aspects which are so far not covered under the existing laws.
It is believed that companies can start taking extra risks or compromise on some aspects after getting confidence due to insurance coverage.
Product liability may also lead to expensive products. Ultimately, the cost incurred by any company towards insurance premium is borne by no one else but an end user. Manufacturers, in order to cover risks, could raise prices, and may underplay on standards at the same time. The revenue, thus, collected from the sales of products would be far more than the amount paid towards a relatively less number of claims.
Meanwhile, there is a consensus in the industry that companies must have product liability insurance under their belt in order to avoid untoward risks which can impact their operations, hurt consumer interests and even make them face the threat of closure.
Exclusions in a Product Liability Insurance Plan
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