BAFSA FOCUS NOVEMBER 2021
Product Liability Insurance – are you getting enough? INSURANCE COVER IS ONE OF THOSE THINGS WHERE BEING W I S E B E F O R E T H E E V E N T PAY S W R I T E S G A R Y E ATO N B S C ( H O N S ) , FCII, MCILA, CLIENT DIRECTOR AON INSURANCE BROKERS.
i am often asked for advice on Products Liability cover, and I’m sure that there are many readers of FOCUS will be all too familiar with such cover. But what do such phrases as “efficacy”, “excess layer” and “in the aggregate” really mean? Also why does one need product efficacy cover at all if one has professional indemnity insurance? These are questions I’ve been asked many times in my career and I have sought to answer some of these below. IS PUBLIC AND PRODUCTS LIABILITY COMPULSORY?
In a word, “no”. As a business you are required by law to have Employers Liability insurance and to insure your motor vehicles for injury or damage to Third Parties, but there is no legal requirement to take out Public and Products cover. That said, many customers will insist upon this as a prerequisite to contractors being awarded work, so even though not legally required you will need it in just about all cases as a contract requirement. 20 | ba f sa .o r g .u k
W H AT ’ S T H E D I F F E R E N C E B E T W E E N PUBLIC AND PRODUCTS LIABILITY?
To give an example, if you were to cause fire damage to a building using a blowlamp or inadvertently turn on a water supply and cause a flood or drop a pipe on someone’s foot, these would be examples of Public Liability claims. Products Liability claims arise when the damage or injury is caused by a product supplied. In case of sprinkler companies, an example of a product claim would be if an installed system did not activate and a fire took hold as a result. This would be an example of a product not fulfilling its intended function, in other words, “product efficacy”. More about that later. HOW MUCH COVER IS NEEDED?
This depends largely upon what your customers ask for. A point to bear in mind is that Products Liability cover is “in the aggregate”. This means is that in a policy year (policies are nearly always one year long) your Products policy provides a single pot of
money. Therefore, if you have a £5 million aggregate limit and you have a £4 million claim in the first week of your insurance, you have a £1 million limit left for the other 51 weeks of the year. Taking out as high a limit as you can afford at the outset is a good safeguard against this. Public Liability is different in that the only limitation is “per claim”. In theory for Public Liability claims, you could have any number of claims in a 12-month period and your policy would not be exhausted. E F F I C A C Y – W H AT I S T H I S ?
I mentioned Product Efficacy above, and I would like to expand a little upon on this. Product efficacy (or inefficacy – the words are used interchangeably - both mean the same thing) is when the product supplied does not do the job it was designed for. In the case of a sprinkler company, if you install a system and the pump doesn’t operate, or sprinkler heads do not activate, these would be examples of a product not doing its job – not being
