Category Archives: Product liability

Product Liability Claims Can Be Unpredictable

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I was reviewing the website, www.recalls.gov, the other day with one specific thought in mind – how many products are on the recall list that you would never classify as high risk, but are considered dangerous enough to be recalled or removed from public use?

Keep in mind that recalls are simply not for defective products that do not work as intended.  To implement a product recall there must be some evidence that the product presents an imminent danger to cause bodily injury or property damage.

The following items may surprise you to be on the product recall list:

  • Denture cream
  • Foot Warmer
  • Car Floor Mats
  • Coffee Mugs
  • Office Chairs
  • Candle Holders
  • Women’s Robes
  • DVD Players
  • Flashlights
  • Women’s Shoes
  • Indoor Light Fixtures
  • Key Chains
  • Computer Batteries
  • Entertainment Stands
  • Window Blinds

The point I am trying to make is that all of the manufacturers, importers or distributors of these products could not have anticipated the type of problems they are currently experiencing. 

So the next time you feel like paying for product liability insurance is a rip off, I recommend you go to www.recalls.gov and look at all the products being recalled and ask yourself if your business could survive without product liability or product recall insurance, if one of your products ended up on the list.

Nanotechnology – The Great Unknown!

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Back in December of 2008 I wrote a blog “Insuring Nanotechnology Still Up In The Air”.

 In the article, I stated that because insurance carriers viewed nanotechnology as potentially the next “asbestos” it would be difficult to insure and that nanotechnology business development would probably be forced to ‘creep at a snails pace”.

It turns out that, maybe, I was wrong. According to Lux Research, a consultant on emerging technologies, Nanotechnology business is expected to increase thirty fold.  It is expected to increase from $100 billion in 2007 to $2.6 trillion in 2014.  It is thought that, as much as 15% of all manufactured products will rely on some type of nanotechnology by 2014.

The interesting part of the from a product liability insurance point of view is how many insurance carriers are going to line up to provide product liability policies for nanotechnology businesses.  Ultimately, larger companies, such as DuPont and 3M, could either self-insure or bring enough premium to the table to attract some insurance carriers to provide product liability coverage.  However, with some claims already being filed with some sunscreen companies that use nano particles in their products, it is my opinion that most of the insurance carriers are going to wait before jumping in to provide product liability coverage for the new emerging nanotech products.  The insurance carriers are going to want a proven track record of no claims before making product liability insurance policies available to small and medium size companies.

The insurance companies’ primary concern is that since nanotech particles can be smaller than a virus and can easily penetrate or be absorbed by human tissue, they may be handling severity related claims such as cancer, similar to the thousands of past and pending asbestos claims.

One thing that is a sure thing – product liability trial lawyers are already having seminars in far away exotic locations and are preparing their strategies on how to hit a home run similar to the home run hit with asbestos.

The Electronic Discovery Trap

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In a recent blog, “Why Naming Multiple Defendents In A Lawsuit Is Common Practice”, I talked about the liberal discovery rules in the U.S. and cost to comply when named as a defendent in a product liability lawsuit.

I wanted to expand on this because so many of the businesses that contact us have never been through a lawsuit and do not have any concept of how extremely expensive it is to comply with discovery in today’s electronic and technological world.

Often overlooked in today’s modern world is the fact that plaintiff attornies have spent the last 20 years perfecting the art of electronic discovery and how to use it against the defendents as a way of making them spend money. 

Did you know that defendents are required to preserve every email? If the emails are in an old system, defendents are required to search out and discover emails in old systems that are no longer supported and make this information available to the plaintiffs in whatever format they want to read it.  Not only is it expensive to ferret out the emails, but what if the emails contain sensitive materials that are protected by HIPPA privacy laws?  The cost to comply goes up.

I think you get the picture.  Even if you have no liability in the lawsuit, our liberal discovery rules in the U.S. allow the plaintiff’s attorney to force you to spend a great deal of money to comply with discovery.  The higher the costs to you the greater the asking price by the plaintiff’s attorney to reach a settlement.

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.

Did You Know Your Product Liability Policy Excludes Pollution Liability?

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One of the most overlooked and devastating exclusions in a product liability policy is the pollution exclusion. 

Many manufacturers, assemblers and importers of equipment such as machinery, piping and hoses overlook the fact that chemicals will be passing through their products and think that their product liability policy will cover them in the event a chemical is released causing property damage or bodily injury.  A defective product that releases chemicals into the environment can render business property completely unusable and potentially cause far reaching and long lasting environmental damage that could take massive amounts of money to rectify.  The damages could easily reach into the million of dollars.

Most general liability and product liability policies specifically deny coverage for bodily injury or property damage arising from the discharge of pollutants “which arises of ‘your work’ … or … which arises out of ‘your product’”. 

The next time you and your risk managers meet, I highly recommend that you discuss your pollution liability exposure.  You may agree that your pollution liability may be roughly the same or higher than your product liability exposure.

Remember the primary reason you should buy insurance – to cover severity and catastrophic loss.  Even a minor pollution spill may be too expensive to cover out of pocket and possibly expose the officers and owners of the business to personal liability.