Did you know your Public Liability insurance only protects your business if you cause harm to another person, or damage another person’s property, due to negligence? If the loss or damage caused is financial only, there is no cover provided under a Liability policy.
This is where Professional Indemnity Insurance (also known as Errors and Omissions cover) steps in and is often an under-considered exposure for manufacturers.
To explain, let’s look at the following scenarios, which without Professional Indemnity insurance would have resulted in an unsuccessful claim and the manufacturer having to pay the costs:
i. A metalworker designs and manufactures a part used in air compressors. The part caused a slight leak to develop in the compressors, which resulted in the company needing to inspect and replace hundreds of compressors. The metalworker was sued for lost revenue due to the defective part, incurring a claim payout of over $1m and defence and investigation expenses of $65,000.
ii. An injection moulder of food containers for dairy products erroneously used an inadequate grade of low-density polyethylene in the manufacturing of container lids. As a result, the lids failed to provide an airtight seal when stored at low temperatures, making an entire shipment unacceptable for its intended use. The dairy company sued the mould manufacturer for lost revenue and resulted in a claim payout of $500,000 and defence and investigation expenses of $75,000.
iii. A plastics packaging company did not include a warning notice in one batch of headphones it packaged for a client. The batch could not be specifically identified and, as a result, all of the headphones had to be taken off the shelves. The packaging company was sued for lost revenue and expenses incurring a claim payout of $200,000 and defence and investigation expenses of $45,000.
Most standard General Liability policies will have a number of exclusions, which may include:
- Damage directly caused by a fault or defect in a product.
- Any incorrect description of products.
- Failure of products to conform with advertised performance, quality, fitness or durability.
- Faulty workmanship.
- Failure of any product to meet the level of performance, quality, fitness or durability expressed or implied.
Considering a Professional Indemnity policy can reduce the above gaps.
To learn more about Professional Indemnity for manufacturers, contact your CQIB advisor.