Exclusions in Product Liability Insurance Policies

​Product Liability Insurance is crucial for businesses that manufacture, distribute, or sell products. It helps protect against claims arising from defective or harmful products. However, like any Business Insurance policy, product liability coverage comes with exclusions—specific situations or circumstances where claims may not be covered. Understanding these exclusions is essential for businesses to avoid unexpected financial risks. Below are some exclusions to look for when getting a Product Liability Insurance Policy:

Intentional Acts and Fraud
Product liability insurance does not cover damages caused intentionally. If a business knowingly sells a defective or harmful product, any resulting claims may be denied. Fraudulent misrepresentation of a product’s safety can also lead to claim denials.

Product Recall Costs
Most standard product liability policies do not cover the cost of recalling defective products. Businesses must purchase separate product recall insurance to cover expenses related to pulling defective products from the market, replacing them, or notifying customers.

Known Defects
If a company is aware of a defect but continues selling the product, any damages caused by the defect may not be covered. Insurance is designed for unforeseen issues, not negligence in addressing known safety concerns.

Professional Services
If harm results from faulty advice, design, or services rather than a physical product, it may not be covered under product liability insurance. Instead, businesses may need professional liability (errors and omissions) insurance.

Damage to the Insured’s Own Product
Insurance policies generally cover damages the product causes to third parties, but not the cost of repairing or replacing the defective product itself. Businesses must cover their own manufacturing defects.

Environmental or Pollution Damage
If a product causes environmental contamination, such as chemical spills or toxic waste leaks, standard product liability insurance may exclude coverage. Specialized environmental liability insurance may be required.

War, Terrorism, and Cyber Risks
Many policies exclude damages related to acts of war, terrorism, or cyber-related losses. If a product is compromised due to a cyberattack, standard product liability coverage might not apply.

Understanding exclusions in Product Liability Insurance ensures businesses are prepared for potential risks and can take proactive steps to mitigate financial losses. Carefully review policy terms to understand coverage gaps. Also consider additional insurance policies for product recall costs, environmental liability, or professional liability. Lastly, maintain strict quality control to prevent product defects. If you have questions about Product Liability Insurance or any other Business Insurance policy, please feel free to contact me.

Jason Matison
Commercial Insurance Agent
Austin, Texas