Product Recall Insurance

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: The classic definition of product liability reads, as ‘Manufacturers and anyone in the chain of product distribution can be legally liable for defective products that cause injury to the purchaser, a user or bystander, or their property’. The manufacturer or distributor can purchase a product liability insurance to protect against compensation payable, claimants’ costs, fees, expenses and defence costs up to the limits purchased.

Product recall refers to all the measures undertaken by a manufacturer, distributor or importer with the aim of stopping further sales and further use of individual series or batches of a specific product because they pose an acute danger to life, health or property of third parties. The recall could be a) Voluntary (by manufacturer or distributor on own decision) versus officially ordered (by a public authority based on statutory, regulatory or judicial powers), b) Silent (by means of letters addressed personally to actual or presumed buyer) versus public (publicised through media) c) First party (by manufacturer or distributor of defective product or component manufactured) versus third party (by manufacturer or distributor of defective product or component manufactured but raw materials, parts, intermediate products or service are supplied by suppliers or subcontractors).

Product liability policies typically exclude any of the above recall expenses, which would far outstrip the cost of defective products themselves. The recall of soft drink bottles might cost a hefty 15 million dollars. Obtaining product recall insurance is difficult, especially in India. It needs procuring capacity from world markets, which is dwindling strikingly in the United States and in Europe. What does product recall insurance cover? It reimburses expenses incurred like costs of correspondence, newspaper and magazine advertising, radio or television announcements and transportation costs for the return of products. It also covers costs of examination and replacement of product arising out of recall. A product guarantee coverage, which is also a part of product recall covers, the costs of removal, recovery, repair, alteration, treatment of products, which fail to perform the function for which they were manufactured.