This is the third blog in the series of “State To State Variability”. The point of this series is to point out to the reader how particular state laws are statutes can impact the outcome of a product liability lawsuit and how they can vary so much from state to state.
Statute of Limitations laws place a time limit on how long an injured party has to file a product liability lawsuit, after the time of the injury. After the time limit has expired, an injured party loses the right to file a product liability lawsuit, unless a legal exception applies. For most states, a product liability claim must be filed within 2 to 4 years, after the injury.
While the Statute of Limitations appears to have less variability from state to state than Joint And Several Liability and Statute of Repose, the real variability lies primarily with the legal exceptions. When legal exceptions exist, it allows the Statute of Limitations to stop running. Typical legal exceptions are when a victim was a minor or mentally incompetent at the time of the injury or the defendant is in bankruptcy. For example, in the state of New York, a minor has 3 years after their 18th Birthday to file a product liability lawsuit.
Claims-Made Policies and Children’s Products
Because most states allow, at least, until the eighteenth birthday of a victim to bring a product liability lawsuit, claims-made policies are not a good fit for businesses that manufacture, import or distribute children’s products.
To state it as simply as possible, once a claims-made policy is cancelled or non-renewed, there is no product liability coverage for any prior injuries or incidences involving your products. To have a claim covered by a claims-made policy two things must exist – you must have the injury and the claim during the policy period. In other words, you must keep renewing your claims-made policy or, if you switch policies, you must have the new insurance carrier to endorse your new policy to include the retro-date (original effective date of our first claims-made policy) of your first insurance policy.
The other issue for children’s businesses is the large retailers of children’s products are all too aware of the legal exception for minors that stop the statute of limitations from running. As a result, most of the large retailers will require providers of children’s products to have an occurrence-based policy. Unlike a claims-made policy, an occurrence-based policy only requires an incident or injury to provide coverage. So all prior incidences or injuries to the cancellation or non-renewal of an occurrence-based policy would still be covered by the insurance company.
In summary, while it is tempting to purchase a claims-made policy because premiums can be 30 to 40% less than an occurrence-based policy, most of the major retailers are aware of the legal exception for minors and, as a result, will contractually require their vendors to have an occurrence-based policy in order to do business. Also, from a pure risk management point of view, the owners, principles and stockholders of a children’s business should be able to sleep better at night knowing the occurrence-based policy will still provide product liability coverage for incidinces or injuries prior to the policy being cancelled or non-renewed.