Importers, distributors, manufacturers and inventors of children’s products must understand how insurance carriers, courts and retailers think about this distinct category of products.
An occurrence-based insurance policy better protects the distributor and retailers than a claims-made policy. An occurrence-based product liability policy provides coverage if the incident that led to a product liability lawsuit happened when the policy was in force.
The same cannot be said for a claims-made policy. To be covered by a claims-made policy, both the incident and the claim must occur when the policy is in force. In other words, with a claims-made policy, if an incident occurred while the policy was in force or active, but a claim filed after the policy expired, there would be no coverage.
Retailers selling children’s products are well aware of the weakness of the claims-made policy. They focus on not being seen as the only deep pocket if a Product Liability lawsuit occurs involving a product they sell.
Anybody thinking about inventing and/or distributing a children’s product in the U.S. for the first time should visit www.recalls.gov. Review there all the seemingly innocuous children’s products currently under recall. None of the businesses listed in those recalls would knowingly put a dangerous product into the marketplace.
With any children’s product, the unknown typically leads to a product recall. For example: drawstring choking hazards, brittle plastics used in skates, lead and cadmium used in cheap jewelry, etc. Such hazards do not always lead to Product Liability lawsuits. However, they often lead to a product recall.
The fact is that recalls are very expensive and much more likely to occur than the more serious Product Liability lawsuit.
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