Product contamination, misuse and recalls are among the risks associated with manufacturing and distribution operations. To learn about the insurance policies that can help companies protect themselves, we spoke with John Heaner, Associate Vice President, Regional Director, Commercial Insurance, Burns & Wilcox, Tampa, Florida.
What are some of the greatest risks today in manufacturing and distribution?
J.H.: The greatest risk companies face is the products and completed operations exposure. With manufacturing, whether it is food, non-food, or medical devices, if for some reason your product was contaminated or defective, you could be looking at lawsuits or massive product recalls that can cost the company money. Even if you go out of business or sell your business, you still face a discontinued-products exposure. Your products are still out there, so if someone gets hurt or something happens because of a product that you made, you could be held liable. The same goes for distributors.
What should business owners in this industry be aware of relative to these risks?
J.H.: Manufacturers should think about anything that could possibly go wrong. Some consumers read instructions and some do not, but the company can be held liable regardless. It is always a good idea to consult an attorney, especially when writing warning labels or nutritional facts. All those things are necessary because of the litigious environment in which we live. Anything can happen. There are so many liability aspects associated with making or distributing a product.
Which insurance policies can help them respond to these threats?
J.H.: There are many kinds of insurance that a manufacturer and distributor would want to have, but the most important is coverage for products and completed operations, which would usually have its own limit under Commercial General Liability (CGL) Insurance. When a product is defective, CGL Insurance can pick up the resulting damage. Most markets are going to give a sublimit for product recall, but manufacturers should always consider a standalone Product Recall Insurance policy as well. Those policies are pretty popular now. Trademark Infringement Insurance or Intellectual Property Insurance is something they should also be aware of. Business owners should look at their policy and see whether they have an occurrence- or claims-made-based policy, what their deductibles are, if it is worldwide coverage, and whether legal expenses are inside or outside of the limits.
Are there steps that businesses should take or services they should invest in that complement their insurance coverage from a prevention standpoint?
J.H.: Product manufacturers can buy insurance to protect against individuals stealing their intellectual property, but they still need to have the patents. That is the first step in protecting their proprietary formula, so companies should consult an attorney and get a patent for whatever product they make. Also, business owners sometimes confuse warranties and insurance; if a company warrants their product, that is something they choose to do as a business, but insurance is not going to replace the product. They would provide coverage if something happens as a result of the product. It is important to have a formal quality assurance program in place.
What advice would you give brokers to increase their success rates with these products?
J.H.: There are certain insurance carriers that target product-driven accounts. Make sure you align yourself with those carriers. Having a good understanding of the product will also help them — what is the product, what is it intended to do, and who is going to be using it? Brokers should also explain that the coverage provides so much more protection than most businesses realize. Business owners often underestimate what could happen; it is the classic “nothing will ever happen to me” or “I am too small or insignificant for something to go wrong.”
Why should someone consider Burns & Wilcox for their Manufacturing & Distribution Insurance needs?
J.H.: Not only does Burns & Wilcox have subject matter experts who specialize in manufacturing and product-driven accounts, but we have a very wide breadth of insurance markets that have niches in product liability. That includes our own exclusive insurance company, Atain, which goes after product-driven accounts, as well. We have markets that will provide worldwide coverage, and coverage for Product Recall, discontinued Products Liability, Trademark Infringement and more. The markets to which we have access provide all the insurance needs that a manufacturing or distribution company would need. We also have an exclusive proprietary market that is able to provide Excess Liability Insurance for these types of risks, as well.
Manufacturing & Distribution Insurance
Why your clients might need it: Protects manufacturers and distributors when a claim is filed against them — especially in a time of heavy disruption in the supply chain.
Protects against: Potential product recalls, delays in the manufacturing process.
Expert Opinion: “ Some consumers read instructions and some do not, but the company can be held liable regardless.”
