Product Liability Insurance Explained

There are several circumstances that are not covered under a product liability insurance policy. For example, when there is a pure economic loss because of a faulty product which is not consequential to either property damage or personal injury. This means that product liability insurance doesn’t pay for a claim if your business sells a product and it doesn’t work, resulting in a third party losing money.

Product liability insurance is not the same as product warranty or guarantee, meaning if you sell a product and it doesn’t work and it must be replaced, then no cover is granted.

Furthermore, for a claim to be paid by an insurance company, the damage must take place while the insurance is in place.

For example, if an electrical company sells a dryer to a customer. Two years later, there is an electrical fault in the dryer and it starts a fire that damages the customer’s home. The products liability policy that usually responds is the policy in place when the fire occurred. If the business that sold the dryer goes out of business in the time between selling the computer and the fire and it has no insurance in place, it won’t often be covered by the policy that was in force at the time the product was sold.