State-to-State Variability: Statute of Limitations

Part 3 in the series

This is the last in the series of “State-to-State Variability.”  The point of this series is to demonstrate how state laws vary and can impact the outcome of a Product Liability lawsuit.

Statute of limitations laws place a time limit on how long an injured party has to file a Product Liability lawsuit following the injury.  After the time limit expires, the 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 of the injury.

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, the statute of limitations stop running.

Typical legal exceptions are the victim being a minor or mentally incompetent at the time of the injury or the defendant declaring bankruptcy. For example, in New York, a minor has three years after his/her 18th birthday to file a Product Liability lawsuit.

Claims-Made Policies and Children’s Products

Most states allow minor victims at least until their 18th birthday to bring a Product Liability lawsuit. Therefore, 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 incidents involving your products. In order to be covered by a claims-made policy, both the injury and the claim must take place during the policy period. In other words, you must keep renewing your claims-made policy. Or, if switching policies, the new insurance carrier must endorse the new policy to include the original effective date.

Occurrence-based policies

The other issue for children’s businesses is that large retailers of children’s products are all too aware of the statute of limitations  exception for minors.  As a result, most of them 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.  Therefore, all prior incidents or injuries taking place prior to the cancellation or non-renewal of an occurrence-based policy would still be covered by the insurance company.

Budgeting for the long haul

It’s tempting to purchase a claims-made policy because premiums can be 30% to 40% lower than an occurrence-based policy. But most major retailers are aware of the legal exception for minors. Therefore, in order to business, vendors are usually contractually required to have an occurrence-based policy.

From a risk-management point of view, owners and stockholders should  sleep better knowing their occurrence-based policy provides long-term Product Liability coverage.

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