The most common form used for product liability policies is the Claims-Made & Reported Form.  This type of policy requires the “claim” be made during the policy or the designated Extended Reporting Period (ERP) and reported in the same policy period of the policy currently in force.  On the policy declaration (summary) page it may state: “This is a Claims-Made Policy. This Policy only covers those Claims first made and reported against the insured during the Policy Period or “ERP”, if applicable.”

The second type of Claims-Made Policy form and least commonly used is the “Pure Claims-Made Form.  With this type of policy form the insured only needs to report the claim “as soon as practicable.”  This policy form provides more flexibility because the phrase “as soon as practicable” provides more flexibility and may allow claims to be turned in after the policy term.

What Is A Claim?

Hence the name Claims-Made, it is important to understand what constitutes a claim.  Is a claim a notice received by the insured to hold the insured responsible for bodily injury, property damage, advertising injury or personal injury or is it the formal service of lawsuit or institution of arbitration proceedings against the insured?  The answer could be both. I recommend that you examine the “Notice of Claim” reporting provisions of the policy or the “Definitions” section of your policy to understand what constitutes a claim by your insurance carrier.  Please note that a notice could be something as simple and informal as an email or a letter from the alleged injured party or it could be something as formal as being served with lawsuit papers.  This is why it is important you understand the definition of a claim within your policy.

The recommended simple rule for any insured with a claims-made policy is to always report any claim or potential circumstance that could lead to a claim for the insurance carrier.   All too often, when an insured fails to report a notice of claim, it is out of fear that the claim could have a negative impact on future premiums and, as a result, the insured waits, hoping that the notice never turns into a formal claim.  If the definition of a claim is notice (remember this could be a simple email) or threat to hold the insured for bodily injury, property damage or personal and advertising injury and you renew your insurance policy and fail to notify the insurance underwriter in the renewal application of knowledge of potential claim, this could be a reason for your the insurance carrier to deny a claim.  The insurance carrier could claim they would never have renewed the policy, if they had been aware of the potential claim or claims.

If you were to go out of business or the insurance carrier decides to non-renew or cancel the policy, it would be wise for you to purchase the Extended Reporting Period, particularly if you sell high hazard products.  ERP is a period of one, two or three years the insured can extend the reporting period of potential claims on their policy for an additional premium that is a contractually predetermined percentage of the premium of the last policy. In many claims-made policies the ERP for one year is 100%, two years is 150% and for three years it is 200% of the last premium paid.

3D printing or additive manufacturing, as it is also called, is a technology that will change society so profoundly it defies the imagination.  Think of a world where products being made no longer have go through the start-up steps or costs to be manufactured, where anyone with an imagination can bring a product to reality and manufacture 10 units to determine if there is a demand for the product. No molds or lathes required, just a computer and a 3D printer.  Inventors and start-ups will thrive, as never before seen in the history of man because making and trying new products will become less risky and expensive. 

For example, under today’s standards of manufacturing, to make a plastic part you need to create the mold.  To make a completed product several molds may need to be made before the product is ever completed and brought to market.  To offset the fixed costs required to make the molds, assemble and deliver the product to market, a product must be mass produced and sold by the thousands, thus creating the economies of scale.  With additive manufacturing or 3D printing, you pull up the blueprint on your computer screen, make the necessary changes to the shape and color and then press print.  A machine or 3D printer builds the product by progressively adding on material, one layer at a time.  No molds or factories are required. 

Today, most 3D printers are used primarily to build prototypes and then current manufacturing techniques such as molds and reduction machining are used to build the final products. Currently, only 20% of the output of 3D printers are used to build the final products.  However, by 2020 it is estimated final products produced by the 3D printers will grow to 50%.  In 50 years, it is possible that complete planes, trains and automobiles and anything else you can imagine will be made entirely from 3D printers.

The other great thing about 3D printing is it not just limited to consumer products. 3D printing has already progressed into the areas of human health.  In the future, it may be standard practice to print replacement parts for the human body from layers of human cells.  A company called Organovo apparently has already managed to make blood vessels and cardiac tissue via a printer that dispenses cells instead of ink. 

From an insurance point of view, there are going to be some monumental hurdles to be cleared.  How does a business protect it’s intellectual property rights, if anyone with a 3D printer can make an exact replica of their product almost immediately after it has hit the market?  Because products can be duplicated so quickly, will this cause businesses to push to get products to market quicker; therefore, forgoing valuable testing to make sure the products are safe for the consumers?  How will the patent offices keep up all the new products? And will a businesses want to submit their products to be patented because of the risk of notifying potential competitors to their new products?

I get several calls a week from business start-ups, inventors, importers, patent holders, etc. that are trying to get product liability insurance for their product.  Many times I may be the sixth or seventh agent they have approached for a quote and they are getting frustrated because the premiums they receive are just too high and will not allow them to make a profit.

I feel your pain, but there is a simple explanation that many insurance agents, who do not sell product liability insurance on a regular basis, do not know how to verbalize.  It is not your product, but the class of business that is keeping you from getting the small premium. 

To make this easier for you to understand, think of the small business insurance as computers versus actual people.  Standard insurance carriers are the computers and the non-admitted or non-standard  insurance carriers are the actual people.

The business model for small business standard insurance carriers is to efficiently deliver quotes so they can hold costs down and deliver insurance inexpensively as possible. The Computers have the ability to generate thousands of quotes a day; whereas, an actual person (non-standard insurance carrier) may be only to generate 12 to 15 a day.  The standard small business underwriter is more of a manager that is assigned the responsibility to make sure your business fits neatly in the class of business the admitted insurance carrier has targeted. 

Another import point to understand about the small business insurance policies provided by a standard insurance carrier is the policies are very broad and meant to cover the entire business.  For example, if you are a small baby business that only sells art work for baby rooms and even though this product is not likely to ever be responsible for any type of bodily injury or property damage that could lead to a lawsuit, chances are a standard insurance carrier will not provide coverage for your business.  The reason is simple.  Their policy is so broad that if you later decided to start selling baby cribs your policy would provide product liability for the cribs also, even though the intent of the insurance carrier was to only provide coverage for baby art. 

I know you are wondering why doesn’t the underwriter simply put on the policy that only the baby art is covered under the policy?  Well, think about it. The business model is efficiency and low price. If the underwriter has to stop and write a special endorsement to only cover baby art, then they are not available to process the other quotes generated by the computer.

So if you sell a product or product within the sporting goods, health supplement, construction, energy, exercise, child, disabled, medical or elderly category, remember, it is not your specific product that is causing you to pay a higher minimum premium, but the class of business.

The Excess/Surplus or non-standard insurance market exists for the specific purpose of covering risks that do not fit neatly into the standard or admitted insurance market and have the ability to tailor a policy for your specific products and business needs.

One of the state laws that can have a major impact on the outcome of a product liability lawsuit is the Statute of Repose.  The Statute of Repose prevents product liability lawsuits against the manufactures, importers, designers and distributors of products based on the age of the product.  However, only 19 of the 50 states have Statute of Repose laws to protect businesses from product liability lawsuits.  Most of the states that have Statute of Repose laws limit product liability lawsuits somewhere between 5 to 12 years after the sale of a product.  Two states, Arizona and Rhode Island, have found Statutes of Repose laws for products unconstitutional.

One of the industries that is very familiar with Statute of Repose laws and the impact they can have on a product liability lawsuit is the Tree Stand industry.  For example, if a kid where to die or become a quadriplegic in a state with a 10 year Statute of Repose law and the age of the tree stand was 11 years from the date of sale, the manufacture, designer and sellers of the tree stand could be protected from a product liability lawsuit because of the 10 year deadline was exceeded.  However, in another state that did not have a Statute of Repose law, the manufacture, designer and sellers of the tree stand could find themselves named as defendants in a product liability lawsuit and, at the very least, incur discovery and settlement costs and, at the worst, large monetary judgments by a sympathetic jury.

Past history shows that while in the Senate, Obama, went against party lines and U.S. trial lawyers and voted for tort reform.  So it is not a slam-dunk that he will look to completely do away preemption as a viable defense.

The bigger issue with preemptive defense for medical products is the FDA seems to ignore the risk/utility analysis  so commonly used in product liability lawsuits to determine if another product on the market at the same time as the alleged defective product would perform the same functions without the alleged defect.   It appears that the FDA routinely approves medical products that have similar uses as existing medical products on the market, but have more side effects without providing superior results.

This leads many to believe that the FDA is not a truly independent agency and that they may be coming under the influence of the big medical and drug companies.  As long as this continues to happen there appears to be no choice but to allow product liability lawsuits to determine if the injury in question could have been avoided.

If preemption is going to be used as an effective product liability defense, the FDA is going to have to tighten its approval guidelines so they have more credibility within the courts.