Product Liability, Product Recall and Impaired Property

What’s the difference?

One of the most common areas of confusion among clients is understanding the differences between Product Liability, Product Recall and Impaired Property.

Assumption #1

Many people wrongly assume that Product Recall and Impaired Products are covered by their Product Liability policy. The standard ISO Product Liability policy form specifically excludes “damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of your product, your work or impaired property.” (Emphasis mine)

Assumption #2

Another common mistake is assuming impaired property or products are covered by a Product Recall policy. A product recall is triggered by a product that causes bodily injury or property damage or poses an imminent danger of bodily injury or property damage. Impaired property is tangible property (other than your product) that cannot be used or is less useful because it incorporates your product that is known or thought to be deficient, defective, or inadequate. However, this is true only if such property can be restored to use by the repair, replacement, adjustment or removal of your product

Untangling the confusion

People call me looking to protect profits if they are required to warranty or pull their defective product and refund consumers. It is possible to find Product Recall policies that will offer an Impaired Property endorsement. But it’s important to note that it does not cover your obligation to replace your product or to refund customers. Impaired Property is specifically designed to provide some protection to the third party that incorporates your component or ingredient into their finished product.

What you really need to remember

In summary, Product Liability does not provide coverage for a product recall or impaired property. Product Recall does not provide coverage for impaired property without an endorsement. Impaired Product does not provide coverage to replace or refund the price paid for your products.