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Chapter 11 Casualty reinsurance 11/21

G Products liability

Products liability insurance is the insurance of the liability for losses caused by faulty products.
Insurance of the
liability for losses
caused by faulty
G1 Extent of cover and exclusions products
Products liability is the legal liability of a producer towards third parties who have sustained bodily
injury or property damage caused by a defective product. It is defined as the obligation to compensate
damages for losses occurring after the delivery of goods produced, supplied or completion of works and
or rendering of services, the cause of such damage nevertheless results from product deficiencies
already prevailing prior to the delivery or handover of such product or work to the customer.
Common products liability exclusions under treaty reinsurance include aircraft, explosives and
chemicals, alongside many of those considered in section F1.

G2 Underwriting considerations

Reinsurers should seek the following additional information when negotiating coverage for this class:
• Does the reinsured provide cover for exports to North America? If so, it would be expected to be able to
provide details of any amounts as percentages of turnover, as well as advising its underwriting
attitude to such risks.
• Details would be required of the maximum and average limit of any acceptance in the aggregate and
confirmation as to whether coverage is provided on an aggregate basis.
• Reinsurers would expect to receive information as to the extent that defective design coverage is
granted by the reinsured and confirmation that products guarantee and products recall are both
excluded from the original policies.
• Policy to be written on a claims-made basis due to negligent acts, errors or omissions committed
during a specific period prior to inception of the policy, say three years, and during the policy period
itself.
• In addition to the above, a list of all other usual exclusions contained in its original policies would be Reference copy for CII Face to Face Training
expected to be provided by the reinsured.

G2A Accumulations including active ingredients

Accumulation for products policies would be slightly different in that the reinsurer would not necessarily
fear a large single loss occurring in one place but rather a series of losses caused by the same product;
for example, a pharmaceutical product could injure thousands of people.
Example 11.8
Thalidomide was a tranquilliser that went on the market in 1958. It was hailed as a ‘wonder drug’ and was given to
pregnant women as a cure for morning sickness. However, in the late 1950s and 1960s, more than 10,000 babies in
the UK alone were born with deformities. Millions of pounds have since been paid in compensation. Chapter

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