III Exam|IC 74, Liability Insurance|One Liners|Products Liability Insurance|Chapter 6

III Exam|IC 74, Liability Insurance|One Liners|Products Liability Insurance|Chapter 6   

The Liability Insurance (IC – 74) is a paper in III exam  for Non Life Insurance. The Liability Insurance (IC 74) is a optional paper and it comprises of 30 Points. This is the most important paper in III Examination, and most people prefer this paper.
This paper comprises of 100 Multiple Choice Questions. Aspirants need to score 60% in this paper to qualify for Licentiate.

We are providing Chapter 6: Products Liability Insurance one-liners of this paper practice of Non Life Insurance (IC – 74) which will be very important from exam point of view. This one-liners is very easy to understand.

Chapter 6: Products Liability Insurance

  • Products Liability Insurance Is Becoming Popular In India, Particularly With Manufactures Of Consumer & Industrial Products. This Insurance Was Introduced In U.K. In 1940.
  • Products Liability Cover Had Its Origin In The ‘Food And Drink’ Risk. Food & Drinks Covers Were Added By Endorsement To The Public Liability Policies Issued To Hotels And Restaurants. The Endorsement Provided Cover For Legal Liability For Death, Bodily Injury Or Illness Caused By Foreign Or Other Deleterious Matter In Food Or Drink Sold Or Supplied By The Insured. This Cover Was Also Demanded By Manufacturers, Wholesalers & Retailers Engaged In The Supply Of Food & Drink.
  • The Judgement Given By A Court In The Case Of Donoghue V. Stevenson Further Boosted The Demand For Products Liability Insurance
  • When Products Are Sold To Public, If They Are Defective, They May Cause Death, Bodily Injury Or Illness To People Or Damage To Property. Increase Consciousness & Emergence Of Consumer Protection Organisation In The Country Have Further Contributed To The Demand For This Class Of Insurance.

Legal Aspects Having A Bearing On Products Liability Insruance:-

  • The Insured Could Be: A Manufacturer, A whole seller Or A Retailer
  • Claim For Injury Or Damage May Be Made Against Any One Or Two Or All Of Above

Liability For These Claims May Arise Under Any Of The Following:

Indian Sale Of Goods Act , Law Of Tort, Or Consumer Protection Act

  • Section 15 : Sale Of Goods Act, The Seller Has Responsibility To Ensure That Goods Sold Correspond With Description, If The Sale Is By Sample-Must Corresponding With Description, The Goods Should Be Correspond With Sample.
  • Section 16: The Seller Has An Obligation To Ensure That Goods Are Fit For The Purpose For Which They Are Required By The Buyer. This Section Modifies Law Maxim Of ‘Buyer Beware’ This Provision Applies Whether Seller Is Manufacturer Or Not.
  • Section 17: In Contracts If Sale By Sample, The Goods Shall Not Only Correspond With Sample In Quality, But Shall Free From Defects.
  • Section 59: Confers On The Buyer The Right Among Other Things To Claim Damages For Breach Of Contracts.
  • The Actions Under Sale Of Goods Act For Breach Of Condition Or Warranty Need Not Be Based On Negligence. This Conditions Applies Only As Between The Parties To The Contract.
  • A Guarantee Given By The Seller May Include Not Only Replacement Of The Defective Products But Also Indemnity To The Buyer Against Any Loss, Damage Or Injury Caused By Defective Product. This Would Be Liability Assumed Under Contract Or Agreement Which Is Excluded Under The Product Liability Policies.
  • The Seller May Contract Out Of His Liability By Including A Disclaimer. The Law Does Not Prohibit Such Disclaimers So Long As The Following Conditions Are Satisfied:
  1. The Disclaimer Is Brought Clearly To The Notice Of The Buyer Before The Sale Is Effected
  2. The Disclaimer Is Not Contrary To Public Policy
  • The Liability For Injury Or Damage Caused By A Defective Product Can Arise On The Basis Of Breach Of Contract As Provided In The Sale Of Goods Act.
  • Provision Of Law Of Tort: Apart From The Purchaser Who Is A Party To The Contract, Claims For Injury Or Damage May Also Be Preferred By A Member Of Public Who Has No Contractual Relationship With The Manufacturer, Whole seller Or Retailer Eg. A Relative or Friend Of Purchaser. Liability In Such Cases Arises Under The Law Of Tort And The Principles Of Law Of Negligence Will Govern The Situation. – Case Donoghue Vs Stevenson(1932) The Law Of Tort Gives Rise To Wider Liability.

Provision Of The Consumer Protection Act,1986:

Apply To Claims Related To Defective Goods

1, Defects In Goods

  1. Consumer Complaints
  2. Consumer Disputes
  3. Manufacturer
  4. Trader

District Forum, State and National Commission

  • Consumer Disputes Redressal Form , If Satisfied That Goods Complained Against Suffer From Any Of The Defects Specified In Compliant, It Can Issue An Order, Directing The Opp. Party To Pay Such Amt. As May Be Awarded By It As Compensation To The Consumer For Any Loss Or Injury Suffered By The Consumer
  • Due To The Negligence Of Opposite Party. The Forum Also Can Provide For Adequate Cost To Parties.
  • The Provision Of The Act Are In Addition To and Not In Derogation Of The Provisions Of Any Other Law. The Complainant Has The Option To Seek Redress In a Civil Court.

Structure Of A Products Liability Policy:-

  • Operative Clause: The First Part of the Clause Refers to the Business of The Insured, The Proposal And Declaration and Payment Of Premium.
  • Second Part Of Clause Which Is Special To Product Liability Policy Provides That The Company Will Indemnify The Insured:
  1. Against Their Legal Liability to Pay Compensation (Incl. Claimant’s Costs, Fees and Expenses).
  2. In Accordance With the Law of The Country.

Indemnity (Clause No.2) :

  1. Claims Arising Out Of Accidents During The Period Of Insurance And First Made In Writing Against The Insured During The Policy Period.
  2. Claims Arising Out Of Any Defects In The Products Specified In Schedule.
  3. Insured Is Indemnified In Accordance With The Opertative Clause For Any Injury Damage Or Pollution But Only Against Claims Arising Out Of Or In Connection With Products Specified In The Schedule.
  4. But Shall Not Mean Food And Beverages Supplied By Or On Behalf Of The Insured’s Employees As A Staff Benefit.

Indemnity Clause 7:

  1. Separate Compulsory Excess Are Provided For Different Geographical Locations. Normally The Excess Applicable To USA/Canada Are Much Highter When Compared To Other
  2. Claims Arising From One Specific Cause Made After 3 Years After The First Claim Of The Series Are Not Covered.

Exclusions Specific To Products Liability:

  • The Policy Is Designed To Pay For Liability for Injury Or Damage Caused By A Defective Product And Not To Pay Damage To The Product Itself
  • Liability for Claims Costs Arising Out Of The Recall Of Any Products Or Part Thereof (8.2)
  • Liability For Claims Arising Out Of Any Product Which With The Insured’s Knowledge Is Intended For Incorporation Into The Structure, Machinery Or Control Of Any Aircraft.(8.3)
  • Liability Arising Out Of Claims For Failure Of The Goods Or Products To Fulfil The Purpose For Which They Are Intended(8.15)
  • This Exclusion Refers To What Is Known As ‘Efficacy Risk’
  • The Product Liability Policy Is Designed To Indemnify For Damage To Property Of Third Parties. If The Insured’s Products Cause Damage To His Own Property Or In His Or His Employee’s Custody, There Is No Liability Under The Policy.
  • Underwriting: Proposal Form Supported By Leaflets, Brochures, Disclaimer Notice Or Other Literature.
  • In Addition To The Proposal Form A ‘Risk Assessment Report’
  • Proposal Form: New Products To Be Marked During The Next 12 Months
  • Products Discontinued ,Recalled Or Withdraw During Last 5 Years
  • Products Subject To Any Enquiry By Any Govt. Agency
  • Past 3 Years Turnover And Projected Turnover Of Goods Sold, Repaired, Serviced Etc.
  • 3 Years Sales Turnover
  • Rating: The Product, Turnover, Limit Of Indemnity-Any One Year, Ratio Of Limit Of Indemnity-Any One Accident To Any One Year, Extension Of Cover Opted, Countries Of Export And Their Turnover

Extensions:

  1. Technical Collaborators- Inclusion Of The Legal Liability Of Collaborator With Respect To The Technical Collaboration Agreement Between The Named Insured And Collaborators.
  2. No Claim Shall Be Payable Under The Policy Unless The Cause Of Action Arises In India And Liability Is Established In An Indian Court Except For Claims In Exports Of Products Covered Under The Policy -By Additional Premium Only.
  3. Third Party Manufacturers: Products Not Manufactured By The Insured But By Sub-Contractors And/ Or Loan And licence Manufactures On Their Own Brand Name Can Be Covered Under The Policy At An Additional Premium
  • Vendors Clause: The Policy Covering Exports May Be Extended To Provide ‘Limited Vendors’ Liability.
  • The Persons Insured Provision Is Amended To Include Designated Person Or Organisation As An Insured But Only With Respect Of Distribution Of Sale, In The Regular Course Of The Vendors Business.
  • Bodily Injury Or Property Damage Occurring Within The Vendor’s Premises.
  • North American Jursidiction Extension Clause: It May Be Recalled That The Operative Clause Of The Policy Does Not Apply To Any Judgement Award Etc. Under The Laws Of USA Or Canada Unless The Insured Has Requested For Such Extension.
  • The Extension Is Granted By And Subject To ‘Retroactive Date’ And Specific ‘Compulsory Excess’

Product For Recall Insurance:

  • Product Liability Insurance Policies Exclude Liability For Claims For Costs Arising Out Of The Recall Of Any Product Or Part Thereof. Some Insurer Provide Cover For These Product Recall Expenses. This Cover May Be Provided As Part Of Product Liability Insurance An Extension Or As A Standalone Product Recall Insurance Policy.
  • Coverage—Recall Expenditure Insured By Insured-Customer Notification, Shipping Cost And Disposal Cost, Though Additional Coverage Can Be Purchased To Cover The Cost Of Third Parties.

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