Errors and Omissions and Product Recall Extensions – Do you know what’s covered in traditional Product Liability Insurance?

Errors and Omissions

Manufacturers’ errors and omissions, along with product recall extensions, continue to gain traction within the commercial general liability insurance market segment. It is recognised that a variety of claims scenarios are not addressed by traditional Broadform or Public and Product insurance liability wordings in Australia.

Whilst product recall extensions produce demonstrable inroads into addressing these exposures, a number of potentially far-reaching limitations remain. Here’s why!

Imagine you as an insured are a metal or plastics manufacturer and are reviewing your liability program for potential liabilities. A standard public and products liability insurance policy caters for personal injury and property damage arising from the supply of defective products. Realising that financial damages to a third party, caused by neither personal injury or property damage is an exposure problem, a sub limit for manufacturer’s errors and omissions is added.  

An error in the manufacturing process subsequently leads to the inadvertent supply of a defective product to an end-product manufacturer. They in turn are unable to incorporate your product into their final product for consumer end-use, resulting in a claim being brought against you for a loss of sales and replacement costs for the faulty goods. Although the extension will address the financial damages, of a third party for the loss of sales, the cost of repair, reconditioning, replacement or making good the products you have supplied will often be excluded.

Is Errors and Omissions Cover Enough?

It is also important to note that the scope of coverage under an errors and omissions endorsement, does not adequately stand in as a substitute cover for professional indemnity policies. Defective products which arise out of any design or professional advice, charged for a fee by the insured are typically excluded.

Product Recall Cover

The Product Recall Expenses extension is regularly added to the policy to indemnify the insured for reasonable and necessary costs, incurred in respect of removal of products from the marketplace when the products pose an imminent threat of personal injury or property damage.

It is crucial to distinguish the parts of product recall coverage. Often, product recall endorsements will only cover direct expenses or first-party expenses, such as communications to customers and the public, including media announcements, shipping, warehouse and storage expenses, cost to dispose of products and cost of extra personnel required to conduct the recall.

In circumstances where there is a third-party company that distributes the insured product on the insured’s behalf, recall expenses that the third party may incur as a result of a decision by them, to withdraw products from the market will often not be covered by a product recall endorsement. Checking the nature of the operative clause of the wording, to ensure the cover meets the insured’s exposure requirements is paramount.

To conclude, the above commentary is a brief outline of the most common talking points we encounter, surrounding the limitations of these endorsements. We invite you to contact us to discuss your specific client needs.

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Berkley Insurance Australia Public and Products Liability Insurance Policy Wording