Tag Archives: Additional Insured

Sub-Manufacturers And Suppliers Warranty Endorsement – One Scary Endorsement!

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The other day we were delivering a policy for American Safety Indemnity Company and we notice an endorsement we have never seen before. This endorsement is called Sub-Manufacturers and Suppliers Warranty or ES 98 100 05 04.

 We requested a copy from the underwriter and were completely surprised to find out that this endorsement had the power to remove product liability insurance coverage if the following conditions were not met:

 

  1. All sub-manufacturers and suppliers that supply any goods or products to you must have Product Liability insurance with limits no less than $1,000,000.
  2. You must have Certificates of Insurance from all sub-manufacturers and suppliers.
  3. All sub-manufacturers and suppliers must name you as “Additional Insured” and must be evidences on the Certificates of Insurance provided to you.

 This endorsement goes on to state “ the insured (you) agrees that this insurance policy has been issued upon the above representations and warranties and that this insurance will not apply to claims arising out of work or operation performed by any sub-manufacturer and supplier unless all of the above conditions are met.

 If all of the above conditions are not met product liability insurance will not apply.

 The scary word in this endorsement is “all”.  A more reasonable phasing of this endorsement would be “endeavor to” meet the above conditions.

 If you have this endorsement in your policy, make sure you contact your insurance agent to have it removed or find another insurance policy that does not have this endorsement.

Why Manufacturers Are Refusing To Name Their Vendors Additional Insured

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Now more than any other time in history we are seeing more manufacturers refusing to name their clients as Additional Insured on their product liability insurance policies or going the other extreme and asking their clients to name them as Additional Insured on their product liability insurance policy. 

Why this is extraordinary is because in the past, manufacturers have used additional insured vendors endorsements as a way to entice retailers and wholesalers to sell their products.  By being additional insured on the manufacturer’s product liability policy, the retailers and wholesalers were reassured that they were protected in the event they were shotgunned into a products liability lawsuit for a manufacturing defect of the product.

This reversal by the manufacturers is due, in my opinion, to two different factors. The first reason may be because more manufacturers are using high self-insured retentions and loss-sensitive rating plans to save money on product liability insurance premiums. When using these methods to reduce their premium costs, manufacturers are likely to be required to come out of pocket for a large portion of the defense costs.  By eliminating clients as Additional Insureds, the defense costs would have to be covered by their client’s product liability insurance policy, thus, saving them a significant amount of money.

The second reason manufacturers may be reluctant to name their clients as Additional Insured is the manufacturers are not always the designer of the products they are manufacturing.  There are 3 legal theories of recovery in a product liability lawsuit – 1) Manufacturer Defect, 2) Design Defect and 3) Instruction and Warning Defect.  When a manufacturer names a client as Additional Insured on their product liability policy, the manufacturer’s policy is primary to their clients product liability policies and the manufacturer’s policy would have to respond to all product liability lawsuits, even if the reason for the lawsuits were for Design or Instruction and Warning defect.  When manufacturers are contracted to build products designed by others, they are not responsible for the design or instructions and warnings of the products and, therefore; do not feel it is their responsibility to cover these types of claims on a primary basis.  This type of manufacturer is often called a third party manufacturer because they are simply building products based on the specifications provided to them by other parties.

Since these third party manufacturers are not responsible for the design or the warning labels or instructions, we are seeing many of these third party manufacturers asking their clients and vendors to name them as Additional Insured on their policy.  The logic the third party manufacturers use to justify this request is that since they are making products to the specifications of their clients and not responsible for warning labels or instructions, they should be covered on the clients Product Liability policy. This is a very convincing argument and not without merit.

What is odd about this dilemma is there is not overt Indemnification agreement or contract that simply declares that the third party manufacturer is responsible for manufacturing defect and the designer of the product, which is more often than not, also, the seller, be responsible for design and instructions and warning defect claims.

If anybody is aware of such an indemnification agreement, please email or fax me a copy.  We would love to be able to recommend this to our clients as a simple way of resolving this troubling issue.

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.

Additional Insured On A Chinese Product Liability Insurance Policy? – Whoop Tee Doo!

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If you are an importer of Chinese products and have been told by the Chinese manufacturer or distributor that you are covered by their product liability insurance policy, I recommend you read Linda Stamato’s article below.  After reading this article, you will have a better understanding of why your U.S. insurance carrier does not provide discounted rates on your U.S. product liability policy when you can provide proof you are Additional Insured on the Chinese manufactures or distributitors insurance policy.  Simply put, nobody with any experience in the product liability field has any confidence that any type of restitution be found in the Chinese courts, even if the case is an obvious slam dunk of manufacturing defect or design defect.

As reported by Linda Stamato of NJ.com: In the United States, we have no end of attacks on product liability litigation, consumer protection laws and class action lawsuits. (A visit to Americans for Tort Reform provides information and perspective on these efforts.) As this group and others question the “excesses” of lawsuits in compensating the injured and doubt their efficacy in bolstering product quality, consider what is taking place in China……  Read the Full Story on Toxic milk and poisoned babies: Product liability limits in China

Confidence in Chinese products is so low that I predict that more retailers and U.S manufactures that use Chinese parts in their finished products are going to start requiring the U.S. Importers and Distributors of these products to start carrying Product Recall Insurance with a third party endorsement that will cover the expenses of any third party (retailer) for the recall of any product that incorporates your product including the cost to repair or replace such product.