Products Liability occurrence question

[Rob]

This may seem like a simple question and probably is but I thought I'd post here to see if my explanation to my customer is correct and see if anyone wanted to chime in. I find it valuable to hear the opinions of my fellow agents and brokers and I think its always fun to talk policy wording.

I have a customer that manufactures a product. His first year is expiring. We procured an occurrence GL policy (including products of course) rather than a claims made products liability policy due to the advantages of an occurrence policy over a claims made policy.

He was considering not renewing his policy right away because he has no other products being distributed until the middle of next year and thought he could pick it back up then. I advised against this for two reasons: 1) An exposure would still exist during the gap period for products that have already been sold 2)Gap in coverage could make companies reluctant to offer coverage later.

The customer questioned #1 stating that is why they purchased an occurrence policy, to cover the products even after the policy expired. My reply was that the CGL policy states that it will cover bi/pd damages for which you are legally liable as a result of an "occurrence" that takes place during the policy period. I told him that unlike a claims made policy, you can report damage that occurred during the policy after the policy expires AND one of the key items is in the definition of "occurrence": An "occurrence" is defined as "an accident, including continous or repeated exposure to substantially the same general harmful conditions". So whether a claim is covered after an occurrence type policy expires, depends on when the damage took place and when it started. If the damage "occurs" i.e. starts during the policy period and show up AFTER the policy expires, I told him it would be covered. I told him that he still has an exposure during a gap because it may not meet the criteria of "continous or repeated exposure".

So how would an insured fare if he goes bare and has a claim for a product which was manufactured during the policy period? It does seem like an occurrence policy should cover products manufactured during the policy period even if the damage/injury occurs later but thats not what the policy language states. I know someone here might end up pointing out the obvious much to my embarassment but that's why I'm posting....to understand better.

So thanks in advance!

[sandit]

Write him a discontinued products policy. It's reasonably priced!

[lauren]

Simply, put the BI or PD must occur during the policy period. Since your insured makes a product, that product is still out there after the policy expires and can cause BI or PD which would not be covered if there is no policy in force at the time of the occurrence. Your client would definitly have a gap in coverage. The Claims made form would not have helped in this situation because still the BI or PD must occur during the policy period or prior (back to the retro date) and the claim made during the policy period or during the tail (usually 60 day or longer if the insured purchases it.)

You can explain to the insured that the policy does not cover for products made or sold during the policy period, but it covers for BI or PD that occurs during the policy period.

Hope this helps.

[kevinraz]

Rob, the incident must occur during the policy period. The product could have been made many years before (while covered under another policy or even while self insured) but the policy must be in force for the policy to apply.

I've had clients mistakenly think that since they had insurance when the product was manufactured (or house built, service provided, etc) that coverage would always be available for any claim related to the product/service. This is incorrect; the BI/PD must occur during the policy period for coverage to apply, as others have correctly said.

FYI this is why most underwriters ask how many units of a product are in usage & how long they last so they can get an idea of how much exposure they are assuming.

Don't forget about the Montrose wording either - if they have some knowledge of a claim at renewal time it is excluded from the new policy, could be an issue if your insured is trying to be cheap on more than one end.

As Sandit said discontinued products would be what they need if they drop a product line or cease operations unless they want the lawsuits to be served to them at home.

[E&S Man]

I would say that it depends.

What is the occurrence?

Use the example of the recent metal shavings in acetaminaphin (I know I butchered the spelling, but you get the point). Was the occurrence when the people took the medicine, or was the occurrence when the equipment malfunctioned and put the shavings in the mix? We know what the bodily injury event was, but was was the cause of the bodily injury?

I would in no way suggest he go bare - for any reason.

These policies will generally be written on a gross receipts basis and will be auditable. Why not write his renewal based on a low receipts figure since they are in a slow period and increase them later in the year when business picks back up? That would save them money now when the cash flow is lower and they can pay later when it picks back up...

I'm an underwriter, and that's what I always suggest. Besides, If I write a risk with a lapse, I generally exclude prior products / completed operations - meaning I would not pick up an occurrence that happens during the policy period for products / completed ops prior to inception.

[lauren]

Once again, the occurrence is when the BI or PD occurred. When the product was made, distributed, etc is not relevant at all.

[Rob]

Thank you all for the responses. As you can see it is exactly what I told him....the BI/PD must occur during the policy period.

Why is it so many insureds think that because they built the home or manufactured the product during the policy that it is covered even after the policy expires?

In this case, this insured has taken my advice and has decided to renew since he will be distributing product by the second quarter of next year.

Where does one get a discontinued products/completed operations policy?I asked one wholesaler and they said they didn't have a product.

[racecarlover]

I am always astounded at how stupid some insured's can be.
You advised your client correctly.
If the table gets turned and he has a claim nasty claim presented during his "gap" just who will be the bad guy....you.
I am in post Katrina New Orleans and can truthfully tell you we have several clients with significant (easily $100,000 plus) uninsured claims who had flatly refused when offered to buy certain lines of insurance, particularly flood insurance and have literally told us that "we should have made them buy it". Then they turned around and wanted to try and sue our agency for E&O. Guess what we learned...the guy with the most paper wins. We had the documentation and they shut up. These are the same clients who bitched and complained about "how much their insurance is costing them" but when offered additional coverages or benefits would not spend another nickle and buy it even after outlining in detail the perils exposed. It was never going to happen to them...wrong!
We handled over 3000 claims with most of them going well because of the job we did carefully marketing, placing, and managing the clients insurance business. We worked our butts off to get the more difficult claims paid properly and still have a very few lingering for various reasons 15 months later.
Hope this assists somehow.

[LadyBroker]

Several wholesale markets offer Products/Discontinued Operations, Chubb Custom being the one that jumps to mind first, as they are quite good at it. However, your client isn't really discontinued, he's just cheap...I don't know that they would consider that risk, but hey ,what do I know!!! If you would like to talk more specifically about a Disc Ops/Products risk, send me a personal message.

Hope this helps, and have a great day!