A product liability insurance is a policy which indemnifies the distributor, wholesaler and retailer against various losses or damages which could arise out of the consumption or use of products manufactured, sold or distributed by them.

As a manufacturer who is supplying products, you always deal with a risk that your products could cause loss or damage to the third-party, including third-party property and person. Here, a small damage can result in massive claims.

In such a case, it becomes imperative to have a product liability insurance which would not only safeguard your company from various claims but would also cover various legal costs which you would have to incur while defending yourself in the court.

Read more: What are the duties of Insured under product Liability Insurance?

It means, if you have a product liability insurance, the policy will pay all the expenses which the policyholder would become legally liable to pay as damages as the result of-

  • Accidental injuries/death caused to the third-party
  • Accidental damages caused to the property of the third-party

Case: 1

L.K Medical manufactured a sterile medical device. However, it did not pay attention towards its storing, and due to which, their product got contaminated during the storage process. The contaminated product was used on a patient, which further lead to infection and injury to the patient.

The patient’s family filed a case against L.K Medical for the medical negligence. Here the case reached the court and L.K Medical was held guilty. The court asked L.K Medical to pay a fine of Rs 10 lakh to the patient.

In this case, L.K Medical had a product liability insurance, and therefore, it approached the insurer for the claim settlement. Here, the insurer asked for the complete account of the accident and found that the product was contaminated. As the claim was genuine, the insurer agreed to settle the claim up to the sum insured.

Here, the insurer not only paid the compensation to the patient on behalf of L.K Medical but also paid legal expenses which the company had to incur in defending itself in the court. Without, product liability insurance, it would have been difficult for L.K Medical to pay compensation to the third-party.

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Case: 2

Incepted in 2013, K.L Spare Parts has established itself as a renowned name in the automobile industry. A few years ago, the company had to face a tough situation when one of its buyers filed a case against it. The buyer, Rajiv Saxena, bought spare parts for his motorcycle. However, just after one day of using those spare parts on his bike, the tyre got busted, and his bike skidded. He was riding the bike at the time of the accident. Though he survived the accident, he sustained some injuries in his arms and legs.

He stayed in the hospital for one week. After being discharged from the hospital, he filed a case against K.L Spare Parts as the company did not test its spare parts carefully before selling them.

The case reached the court, where K.L Spare Parts was held responsible. The court asked the company to pay compensation of Rs 3 lakh to Rajiv. As K.L Spare Parts had a product liability insurance, it approached the insurer for the claim settlement.

The product liability insurance company asked for the documents like the duly filed claim form along with the complete account of the accident. After scrutinising the all the documents carefully, the insurer agreed to settle the claim of K.L Spare Parts.

Here the product liability insurance company not only settled the claim amount and paid compensation of Rs 3 lakh to Rajiv on behalf of K.L Spare Parts, but it also covered the legal expenses incurred by the company in defending itself in the court.

Without product liability insurance, it would have been difficult for K.L Spare Parts to compensate Rajiv. Moreover, legal expenses would have added more pressure on the finances of K.L Spare Parts.