Category Archives: product liability insurance

Defense Costs Inside or Outside The Limits of Liability?

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When buying a surplus lines product liability insurance policy, you are often presented with product liability quotes that indicate the defense costs are inside the limits of liability.  If you read your proposal or quotes carefully, you will often see the option of adding defense costs outside the limits of liability for an additional 10% premium charge.

Why is this important? Before I can answer this it is important that you first understand what it means to have defense costs inside or outside the limits of liability.  If your defense costs are inside the limits of liability, any lawyer fees, investigation expenses, defense expenses and appeal expenses erode your limits of liability.  In other words, if all these expenses add up to $500,000 and you have a $1,000,000 per occurrence limit on your product liability policy, you only have $500,000 left to pay a judgment or settlement.   If your defense costs are outside your limits of liability, lawyer fees, investigation expenses, defense and and appeal expenses of a claim will not reduce your liability limits.

This may not appear to be a big deal on the surface, but if you had a bad batch of defectively manufactured products, you may find yourself faced with multiple claims.   Recent data indicates the national average cost to defend a product liability claim is $876,000.   A $1,000,000 per occurrence with a $2,000,000 aggregate liability limit could be exhausted very quickly and you could find your business with no limits left to pay the judgment or settlement of additional claims very quickly.

Once the liability limits have been exhausted, your insurance carrier no longer has any obligation to pay any claim, judgment or claim expense or to defend or continue to defend your company.

So when purchasing or renewing your product liability policy, review it carefully and if your defense costs are within the limits of liability, think very carefully about spending an additional 10% to add your defense cost outside the limits of liability.  It could mean the difference between success and failure as a business.

Health Supplements Biggest Problem – Undeclared Substances!

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One of the biggest issues facing the health supplement industry is the frequency in which undeclared substances find there way into the products.

One commissioned study conducted by Informed-Choice indicates that approximately 25% of supplements in the market could be contaminated.

Some of the undeclared substances in supplements found could be deadly.  One example of this is when the undeclared drug, Sildenafil, an active drug ingredient for erectile dysfunction, was found in the product STEAM, made by Nutracoastal Trading, LLC.  When Sildenafil interacts with Nitrates, the result could be a lowering of blood pressure.  People with diabetes, high blood pressure, high cholesterol or heart to disease often take nitrates and if combined with STEAM, could have faced life threatening consequences. 

In other cases, there could be financial impact to those that take supplements that have undeclared substances. It seems that almost every week there are athletes in the news claiming that the supplements they were taking had undeclared substances that caused them to fail a drug test. Sometimes the athletes are right. A good example is in 2004 Triathlete, Rebeka Keat, tested positive for norandrostendione and was suspended for two years for failing the drug test.  With the help and support from her sister, her name was finally cleared when the WADA laboratory  tested the supplements  she was taking and found that they were contaminated with norandrostenedione.

Since my job is product liability insurance, what I find most interesting is the question of whether or not product liability insurance would cover both of the supplement manufacturers/distributors in the above mentioned cases.

In my opinion, the first case Nutracoastal Trading, LLC is a slam dunk and should be covered by product liability insurance; however, the second case, involving Rebeka Keat, is not so clear and the manufacture/distributor may not be fully covered by their product liability policy.

In the first case, since the trigger for product liability coverage is bodily injury or property damage, the manufacture/distributor of STEAM should be covered by their product liability insurance policy, since the lawsuit would likely be a result of an interaction of Sildenfil with Nitrates and likely lead to bodily injury or death.

In the second case, it is not as clear whether or not there was any bodily injury.  The attorney for Rebeka Keat could claim emotional distress and trigger the bodily injury coverage of the product liability policy and possibly receive judgment or settlement compensation. However, much of the damage to Rebeka could have been more economic in nature such as the loss of current and future sponsors.   While the product liability insurance carrier may have a duty to defend the manufacture/distributor of the supplement that caused Rebeka to get banned from competition, any attempt to recover economic losses would likely not be covered by the product liability insurance policy, since there was no bodily injury or property damage to trigger coverage.

Tips for Startup Businesses Having Trouble Getting Product Liability

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I recently read a very good article, “When You Can’t Secure Product Liability Insurance” in BusinessWeek written by Karen K. Klein. 

In the article Karen pointed out the following points that make it difficult for startup businesses to get product liability insurance:

  1. Premiums for even low risk products are often too high relative to sales.  Minimum premiums can be between $2,500 to $5,000 annually  and can go up to $5,000 to $10,000 a year.
  2. Commissions for brokers are typically in the 7.5% to 10% range and as a result, there is not enough revenue to get a broker’s interest.   

Since we specialize in providing product liability insurance to startup businesses, I want to share the following tips that may help startup businesses, like yours,  secure product liability quotes and insurance:

  1. Have a business and marketing plan and be willing to provide it with your application.  Businesses that have gone to expense and trouble to put together a business and marketing plan represent, in the eyes of the insurance broker and insurance underwriter, a business that is serious about purchasing product liability insurance.  You would be surprised at how many applications we receive that do not have the basics such as estimated sales or limit of liability.  The higher quality submission you provide the more likely you will find people to help.
  2. Do not approach insurance agents or brokers for formal quotes until you are within 30 to 45 days of needing product liability insurance.  If the agent or broker specializes in product liability insurance, they can, usually, provide you with a premium indication without having to get the underwriter to prepare a formal quote by simply picking up the phone and talking with some of the various underwriters they work with on a regular basis.  
  3. Chose an agent or broker that specializes in product liability.  This is a highly specialized field and not all agents know how to approach the appropriate underwriters or underwriting groups to maximize you chances of getting a competitive  quote.  For example, it is possible that your local agent and I could approach the same insurance carrier, but through two different underwriting groups.  If you local agent uses an underwriting group that has no expertise in the type of product you sell, you will get a quote, but because of the underwriter’s lack of knowledge with your product you are less likely to get as competitive of a quote as you could have from the underwriting group that is familiar and has written similar products.
  4. Be honest.  If your words or application has inconsistencies, then this is a red flag that you are not a serious prospect or a problem prospect that is hiding something.   Experienced agents and brokers know that these types of prospects are the least likely to buy insurance and their time is usually best spent working on other accounts.
  5. As a last result, offer to pay a consulting fee to the insurance agent or broker based on the condition they will refund the fee if you purchase insurance.  As an insurance agent and broker, I constantly have to make decisions, based on past experience, on which applications to submit to the market.   It is our job to make sure we provide high quality prospects and applications to the underwriters so they earn a fair income for their time and effort.  If we bring the underwriters too many low quality prospects that do not buy insurance they may decline to work with us in the future.  As a result, we decline to work with many applicants.  By paying a consulting fee, your broker will know you are a serious prospect and may be willing to go the extra mile to help you secure product liability insurance.

Why Are Product Liability Minimum Premiums So High?

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Probably the most common question I receive from start-up businesses and small businesses is ‘why are my product liability premiums so high?’

The primary reason most start-ups and small businesses do not qualify for low minimum premiums for product liability is because they do not qualify to placed with a standard or admitted market insurance carrier and as a result, must be placed with an excess surplus lines insurance carrier.  To qualify to be placed with a standard or admitted insurance carrier, your business and product/s must fit neatly into a pre-determined class of business that the admitted insurance carrier is familiar with and has experience with and has created a specific class code so it can be rated online.  If your business fits in one of these pre-determined classes by the admitted insurance carrier, quotes can be generated online by one of our account managers and usually takes no longer than 10 minutes generate, if we have a completed application.

When your business or product/s do not fit into a nice neat pre-determined class and you must get your insurance from the excess surplus marketplace, you can expect to pay higher minimum premiums for product liability because instead of taking 10 minutes to complete an online quote, your product/s and application must be individually reviewed by an underwriter who then must take time to prepare a formal proposal. 

If you think about the economics between the standard insurance carrier and the excess surplus insurance carrier, it is easy to understand which one is more efficient and can generate the most return for the insurance company in the shortest period of time.  An online computer is capable of generating thousands of quotes in a single day; whereas, a single underwriter may, on a good day, may generate 12 to 15 quotes a day.

So the real question for start-up businesses and small business owners is what are the reasons you would not qualify for admitted or standard market quotes?  Below is a list of the more common reasons your business may not qualify for a standard or admitted market quote:

  1. Your products are high risk or your advertising makes claims that your product provides safety or reduces risk.
  2. Your product/s are unique and do not fit into a pre-existing product class that the admitted insurance carrier writes.
  3. You are an outsourcer or importer that currently or could possibly deal with a multitude of different types of products. Standard or admitted insurance carriers policies are not set-up to specify individual products by a business and would have to pick-up coverage for all the products of a business. Because outsourcers and importers can handle so many different types of products, the concern by the admitted insurance carriers is, even though you currently do not have any high risk products, a high risk product could eventually get into your product mix and they would have to cover a claim for a product that is clearly not in their accepted product appetite.
  4. You are a start-up company with owners and principles with no experience in the business or products that you want to insure.
  5. Your business has no formal loss history to show the standard or admitted insurance underwriter that you are a better than average risk.

It does not always matter if your product is safe, when trying to qualify for a standard or admitted insurance quote.  It is important to remember that the standard insurance carriers business model is not set-up for individual underwriting of your products for product liability purposes.  The admitted insurance underwriters often lack the technical knowledge to do product evaluations and often consider their premiums too low to stop and complete a thorough evaluation.

Big Bear American Made Choppers, Inc. Sued For Product Defect

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After working in the product liability industry more than nine years and literally working with hundreds of different types of manufactures and distributors, the custom motorcycle manufactures really stand out.  This group, as a whole, are like the motorcycles they design and manufacture – unique and independent. 

We have quoted and placed many product liability policies for custom motorcycle manufactures and when compared to similar size businesses in different industries, one common thread among custom motorcycle manufactures – this group is more likely to roll the dice and not to carry product liability insurance.

This is why I was drawn to the article,  Syracuse Product Liability Trial Underway Against Big Bear American Made Choppers.  Custom motorcycle manufactures should to take notice of the facts of this product liability case and just how quickly a product liability claim can happen.  Fact one, this accident was caused by just two screws that apparently vibrated out of the front fender causing the fender to contact with and lock the front tire of the motorcycle.  Fact two, the injury was real.  The plaintiff ended up having his right leg amputated above the knee.  Fact three, it took three years of discovery before this product liability case was resolved.  I do not have all the facts regarding discovery, but three years implies hundreds of man-hours and hundreds of thousands of dollars were invested to comply and respond to discovery requests.

I do understand that sometimes economics dictate that not everybody can afford insurance; however, when the failure of your product can result in loss of life or serious injury, you have a higher obligation to those that buy your products and you should carry product liability insurance.

With the custom motorcycle manufactures, I believe there is a macho attitude and rationalization that in their minds they believe a person should not buy a motorcycle if that person is not willing to take a risk.  However, I think most custom motorcycle manufactures will find that most riders will accept responsibility for risking their own lives (e.g. driving too fast or not wearing helmets), but will quickly sue when they believe your product was responsible putting them at unexpected or unintended risk.

Only In America – $1,500,000 Settlement For Foggy Goggles

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I recently read an article in “Gym To The Jury” about a man in Pennsylvania that was awarded $1,500,000 because his goggles fogged while water skiing and he hit a log.

Okay, on the surface this seems reasonable, but what I find extraordinary is the man was not injured while wearing the goggles. He was injured after taking the goggles off.  Apparently, with the goggles in perfect condition the man would have seen the log, but with just the naked it eye he could not see the log.

Another interesting fact that most people know that have ever worn goggles while snow skiing or swimming is - most of the anti-fog goggles on the market will fog if you over exert yourself and begin to sweat.  Heat naturally escapes through the head.  In my opinion, only goggles that have built in fans can be guaranteed to be anti-fog because as heat and humidity build up you need to ventilate in order to remove the heat and humidity from the goggles.

It will be interesting to see what impact this settlement has on goggle industry and the cost of product liability for goggle manufactures and distributors. Will goggle manufacturers be compelled to change the wording on their goggles and packaging from anti-fog to fog resistance? This settlement may provide a precedent for plaintiff attornies to sue when there is an injury on the ski slopes or while water skiing by claiming that the goggles were responsible because they fogged and reduced visability. If this happens the manufacturers and distributors of goggles can expect a huge increase in their product liability insurance premiums.

The next time someone asks why product liability insurance cost so much, just show them this blog article and know that this story is not the exception but the norm in the U.S.

Why Naming Multiple Defendants In A Lawsuit Is Common Practice

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When a product liability client is sued, they are usually amazed at how many parties are named in the product liability lawsuit and how many of the named parties have little or no connection to the product that allegedly caused the injury.  

The 3 reasons below will provide a little insight into why there are multiple defendants named when there is a product liability lawsuit.

The first reason there are so many parties named in a product liability lawsuit is  “Alternative Liability Theory”.  This theory allows the plaintiff to shift the burden of proving which of the two or more defendants was responsible for their injury to those defendants in which the plaintiff cannot identify.  Under this theory the plaintiff still has to prove the product caused the injury; however, it relieves the plaintiff of the burden of identifying the source of the product and requires the defendants to prove they were not the source of the injury.  This theory also is a means to get the defendants to identify the guilty parties responsible for the injury in order to avoid being subject to liability themselves.

Of course since product liability law is subject to individual state laws, “Alternative Liability Theory” may not apply in your state.

A second reason so many defendants are often named on product liability lawsuits is because the plaintiff’s attorney could be sued for malpractice, if the attorney fails to name a responsible party to the lawsuit and as a result, the plaintiff misses out on receiving compensation for the injury.  Since legally the plaintiff’s attorney cannot bring the same lawsuit twice, it is the responsibility of the attorney to name all parties that could even remotely have any responsibility for the injury.

The third reason is what makes people so cynical about the legal system.  In the U.S. our Discovery rules are so liberal that attorneys have perfected the art of covering up potential defendants with discovery paperwork.  The costs to comply is so expensive that it is more often in the financial best interest of the defendant’s insurance carrier to provide a settle payment to get release from the lawsuit than to go to the expense of trying to comply with discovery. 

Simply put, by naming as many defendants as possible, the plaintiff’s attorney can increase the amount of money they can collect.  For example, the cost of complying with discovery could potentially cost $10,000; however, by settling for $7,000 the insurance carrier ultimately saves $3,000.  So the next time your insurance carrier decides to settle rather than fight or defend a frivolous product liability lawsuit you will understand that the settlement is based on pure economics.  If you are adamant about defending what you see as a frivolous lawsuit, your insurance carrier may agree to pay you the settlement amount and allow you to hire your own attorney to defend the claim.

Product Liability/Product Recall and The Cost Of Human Life In The U.S.

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I heard something both comforting and disturbing at the same time the other day, when I was talking with a Product Liability wholesale broker. 

We were talking about a prospect that designed and manufactured big commercial slides for water parks and the type of claims typically associated with this product liability risk. 

The disturbing part of the conversation was that he said many of the big designers and manufactures of high risk products such as waterslides were taking their new designs overseas to sell before bringing them back to the U.S. to sell because the cost of a human life was so much less in other foreign countries than it is in the U.S.   In other words, if the design of the product turns out to be defective and people are injured or die, it is much less expensive to handle claims in other countries than the U.S. 

I guess the comforting part of this conversation was knowing that the products in the U.S. my children are using are much more likely to be safe because, if they are not, companies know that there could be a costly product liability lawsuit or an expensive recall of their products.

While I am happy that my children are safe, I am also a little sad that they do not get the opportunity to learn to dive off a diving board or swing on a tire swing because insurance premiums make it too expensive to provide such activities or products.

RV Manufacturer Sued For Failure to Warn

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The owner-operator of a new recreational vehicle filed suit against the manufacturer after the RV crashed, resulting in injuries. The owner said he was driving on an expressway and put the vehicle in “drive” so he could get out of the driver’s seat to walk to the rear of the RV to get coffee.  The driverless vehicle ran off the road and overturned.  The owner of the vehicle claimed in his suit that the manufacturer failed to provide a warning that automatic drive didn’t mean the RV could drive “automatically.”

Source:  Liable to Laugh: An American Specialty Companies Book Copyright 2004

Don’t Be Afraid To Ask To Be Named As Additional Insured

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Do you think you are too small to ask your third party manufacturer or parts supplier to name you as an Additional Insured on their product liability policy? 

The fact is most legitimate businesses have anticipated this request and sees it as a minimum standard for good business practices.  It is common for most manufactures and suppliers to have a blanket vendors endorsement on their product liability insurance policy so they can name their clients as Additional Insured.

If your supplier or third party manufacture will not name you as Additional Insured on their product liability insurance policy and provide you with a Certificate of Insurance showing you as Additional Insured, you should consider this a “red flag” that your supplier or manufacture does not have a Product Liability Insurance Policy.

Remember, you are most likely buying the product based on the word or advertising of the supplier or manufacturer.  If they truly believe in the safety of their products or manufacturing process, they should not have any problem naming you as an Additional Insured on their Product Liability Insurance Policy.

If your manufacturer or supplier will not name you as Additional Insured, consider finding another manufacturer or supplier.