Insurance Advisory Newsletter: Product Recall Insurance – February 2023
This Newsletter is in continuation of our earlier newsletter on Product Liability Insurance (here). Under the current newsletter, we discuss the aspect of Product Recall Insurance which is typically provided as an add-on to Commercial General Liability Insurance(“CGL”). (Previously published newsletter on the Commercial General Liability Insurance can be accessed here)
Product Recall – Insurance
Recall is the act of officially summoning someone or something back to its place of origin. A product recall is a request to return, exchange, or replace a product i.e., inter-alia includes food, beverage, toy, electronics or any products (“Product”) after a manufacturer discovers defects that could hinder performance, harm Consumers, or cause legal issues to the producers/manufacturer. A recall can be initiated voluntarily by the manufacturers or by the Consumers if they face the risks due to usage/consumption of such Products resulting in the likelihood of bodily injury and property damage.
Product Recall Insurance indemnifies the insured for those sums that the insured becomes legally obligated to pay that are arising out of recall, removal, recovery of possession or control, or disposal of the Product that is manufactured, sold, marketed, handled, or distributed by the insured (“Product Recall Insurance”).
Product Recall Insurance will trigger in the event of the occurrence of the following events:
- In the event, a Product has failed to perform the function for which it was manufactured;
- Product which may pose a threat of bodily injury or Property damage;
- Product which has caused a bodily injury or Property damage.
Who Are Protected Under Product Recall Insurance?
Product Recall Insurance protects any entity that is engaged in the manufacturing, sale or distribution of Products which are meant to be used by an end consumer(“Consumer”).
Coverages And Exclusions
| Coverages | Exclusions |
| Direct Expenses | Insured’s intentional acts or gross negligence |
| Notification of customers | Natural wear and tear, rust, mould or rotting of the Product |
| Shipping costs | Loss due to quality deterioration after the expiry of storage life/expiry of the validated period for Products |
| Warehouse or storage costs, Emergency Costs | Any recovery, or attempted recovery, of Insured Losses incurred by one Named Insured from another Named |
| Cost of disposing of the Product | Government ban or regulation |
| Cost of additional personnel required in recalling the Product | Nuclear or radiation |
| Additional cost to purchase substitute Products to replace defective Products | Brand impairment |
| Product recall insurance covers logistic expenses related to recalling a Product | War or terrorism |
Additional Extensions To Product Recall Insurance
- PRODUCT GUARANTEE EXTENSION – This Extension provides cover against the cost of replacing, reworking or recovering Products that have failed to perform their functions due to faults, after the same are availed by the Consumers.
- FINANCIAL LOSS EXTENSION – This Extension provides cover for damages, costs and expenses arising as a result of any financial loss in the event the Product fails to perform the function for which it was manufactured.
Difference between various Product related insurances that are either extensions or add-ons to the CGL
| Product Liability Insurance | Product Recall Insurance | Product Guarantee Extension | Financial Loss Extension |
| The Product Liability indemnifies the Insured for their liability to pay damages and claimants’ costs and expenses as a result of bodily injury or property damage arising out of the Insured’s defective Product. | The Product Recall Insurance covers the Insured for “Recall Expenses”, i.e. expenditures incurred by the Insured for the recall of its Products where the use of the Insured’s Products has or may result in bodily injury, property damage | The Product Guarantee indemnifies the Insured for the costs of recovery, repair, alteration, treatment, replacement, or destruction of any of the Insured’s Products which have failed to perform their intended function after handover. | The Financial Loss Extension indemnifies the Insured for third party and/or Consumer’s financial loss (other than the costs provided for in Product Guarantee) arising out of the failure of the Insured’s Products to perform its intended function. |
