Commercial

Product Guarantee Insurance

Providing protection when products fail to perform as they have been guaranteed to do

After a product has been handed over to the customer, Product Guarantee Insurance will provide cover against the cost of replacing, reworking or recovering products that have failed to perform their intended function due to faulty design, manufacture or installation.  This cover goes hand-in-hand with Financial Loss and Product Recall Insurance.

This cover exists because a products liability policy does not cover repair or replacement of faulty products, nor any consequential losses sustained by the user arising out of these faulty products.

This policy does not require injury or damage to have occurred (unlike a product liability policy) nor does it require the risk of injury or damage (unlike a product recall policy).  It simply guarantees the product, as a 'safety net' for the quality management processes of the policyholder. The only prerequisite is that the product must have failed to perform its intended function.

The liability covered will be contractual in origin, as there can be no liability in tort to repair or replace a defective product.

While our FAQ provides more insight on this policy, we're more than happy to discuss any questions you may have to ensure this policy is right for your business.

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FAQs

For the cover to respond to a claim:-

  1. There has to be a defect in a product supplied due to manufacture;

  2. Unqualified acceptance of the product by a customer has to have occurred;

  3. A recall or the need to replace, rework etc the defective product has to have occurred;

  4. The product has to be supplied after the retroactive date stated within the policy - this is usually the date from when continuous cover commence; and

  5. The policyholder has to be legally liable for the loss.

A product failing to perform the intended function can devastate a company's brand name and profitability. A typical Products Guarantee Insurance policy, where Financial Loss and Product Recall cover is purchased also, will provide cover for  claims made during the relevant policy period (but arising from events prior to the retroactive date) on an annually renewable basis consisting of:-

  • Products Guarantee - the costs of removing, repairing, replacing,  reworking or recovering products that have failed to perform their intended function due to faulty design, manufacture, installation etc., after unqualified acceptance by a customer;

  • Financial Loss - incurred by a third party as a direct consequence of the defective product and for which the policyholder is legally liable. These may include the customer’s recall costs, advertising costs, additional warehousing costs, additional staff costs, destruction costs, down time and loss of profits; and

  • Products Recall - reasonable and necessary costs of recalling the product to the manufacturers' nominated premises where their continued use or consumption may cause the policyholder to incur a legal liability either by reason of the products having failed to perform their intended function, or the use or consumption could cause bodily injury and/or property damage.

The limit of indemnity provided is in the aggregate any one period and limits of up to £5,000,000 are available with legal fees being in addition to the overall limit. Requests exceeding this limit are considered on a case by case basis.

A substantial excess typically applies of at least £10,000 each and every claim and there is usually a USA/Canada jurisdiction exclusion. Where cover is provided for USA/Canada jurisdiction, the limit of indemnity will then be inclusive of costs, fees and expenses incurred in the defence or settlement of any claim and will exclude pollution entirely as well as punitive damages.

It’s worth noting though that depending on the insurer, what is covered under a Product Guarantee insurance policy may differ. Financial Loss and Product Recall insurance are separate covers and will not always be included within a Product Guarantee Insurance offering.  Because of their existence in their own right, this can also mean that some Product Guarantee insurance policies may not be as extensive at providing this cover for businesses unless Financial Loss and Product Recall Insurances are taken out in conjunction with a Product Guarantee Insurance policy. It does depend on the insurer and their approach to this type of cover.

Typical policy exclusions include:-

Products Guarantee/Financial Loss

  • Third party property damage or third party injury

Products Recall

  • Deliberate product contamination;

  • Governmental or Public Authority enforced recall unless a recall would have occurred in the absence of the said enforcement order;

  • Weathering, external damage or gradual deterioration;

  • Products misdelivered or misdirected;

  • Products still in the policyholders custody and control; and

  • Import duties, taxes and Customs and Excise charges before the delivery of products.

General Exclusions applying to all Sections

  • Absence of unqualified acceptance;

  • War Risks and Radioactive Contamination;

  • The amount of the excess;

  • Products supplied before the retroactive date;

  • Incidents/claims which are known about before inception;

  • Punitive and Exemplary Damages  including liquidated damages and penalties;

  • Pollution except where sudden and unforeseen;

  • Asbestos; and

  • Terrorism

This is a specialist area of cover and should be considered by all product manufacturers. It is often required by businesses involved in the manufacture and supply or installation of performance critical products. Cover is especially important for the following industries:

  • Automotive

  • Aviation

  • Construction materials

  • Electrical

  • Food & drink

  • General Engineering / Manufacturing

  • Packaging

  • Perfume, cosmetics & toiletries

  • Pharmaceuticals

Businesses will be proud of their product(s) and their reputation for supplying a quality product. Businesses will ensure their quality control is such that only perfect products are released. Unfortunately, mistakes happen, procedures fail and defective products can be released to customers. In these circumstances the pressure on a company to retrieve the product and rectify the problem is intense and legislation is in place to ensure that dangerous products are removed from sale and made safe. Even non safety issues can result in recalls/withdrawals if the customer feels they need to protect their reputation and will hold the party at fault responsible for their losses.

There is a restricted market place for this insurance.   

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