Coverage for a products failure to perform

[Rob]

I have a client that is going to be maufacturing a safety product for the railroad industry. The product is essentially a receive on the railroad workers helmet and a transmitter on the tracks. It is a backup to the other safety measures the railroad currently takes and notifies the workers via a light and noise of an oncoming train.

The question is what is the best way to insure this exposure? My first thought was E&O with contingent BI/PD coverage.

Am I on the right "track"?

[Shagster12]

That's not how I would work on this exposure. You're looking at a technology product that likely has market appeal in several standard market technology divisions. I would look to provide full GL coverage with Prod/ops. I see the real exposure as being in the faulty operation of the device, so I see it as a product exposure.
I would think that there are several standard markets that would be interested in providing the Products coverage on this.
Good luck.
Shagster

[Rob]

That's not how I would work on this exposure. You're looking at a technology product that likely has market appeal in several standard market technology divisions. I would look to provide full GL coverage with Prod/ops. I see the real exposure as being in the faulty operation of the device, so I see it as a product exposure.
I would think that there are several standard markets that would be interested in providing the Products coverage on this.
Good luck.
Shagster

Ok at first I was thinking of products liability but was concerned that although bodily injury or pd would be covered caused by the product, I was concerned that it would not cover the "failure to perform" part of the exposure.

So can anyone definitely tell me that products/comp ops covers the products failure to perform?

[Rlevine]

My recomendaiton would be to obtain a GL policy and Mfg E&O coverage. If they take a roll in the design, then a professional liability policy to coverage that exposure would be necessary as well.

[Rob]

Ok so we got two different opinions above. One person says a GL policy and an other says GL with manufacturers E&O. I'm not sure what "take a roll" means though

[Shagster12]

"take a roll" means if they perform any design functions, if they "play a part" or do anything in the product design.
Then I do agree that a mfg. E&O would be a really good idea. So if the product malfunctions due to a design flaw you have protection, but if it's a mfg. flaw then you need the GL products cover.
Another thought though is that you'll need to see if you can get the Railroad Protective on the GL since this will be the application of the product..... This might make it more difficult to find in the standard market....

Shagster

[Rlevine]

Sorry, I meant role not roll.

The GL covers BI & PD. There is an exlcusion for your work. I had a client that streched out metal to make it smooth. The mfg who purchased and used the product sued. They alleged that the processing of the metal caused the thickness to be too small and would not be able to be used as intended. We provdied Mfg E&O attached to their Gl to cover those types of claims.

Professional liability is thought of when there is a financial loss. A design flaw that causes the loss is different then when the mfg's process causes the loss. I suggest both coverages to eliminate the carrier from saying it should be professional and not GL. This is necessary if they are involved in the design.

As far as Railroad Protective, there is an exclusion on the Gl when there is construction work being performed within 50 Feet of a RR. The RRPLI provides coverage for this exclusion. It would be very unlikely that a carrier would exclude coverage for a mfg of a product being used by a worker on a RR.

[Rob]

One of my wholesalers provided me with an application through Shand for "Manufacturer's Product Engineering or Design Errors and Omissions Insurance" and we are going to try to get the GL with it. Thanks for the input!

[Rob]

Sorry, I meant role not roll.

The GL covers BI & PD. There is an exlcusion for your work. I had a client that streched out metal to make it smooth. The mfg who purchased and used the product sued. They alleged that the processing of the metal caused the thickness to be too small and would not be able to be used as intended. We provdied Mfg E&O attached to their Gl to cover those types of claims.

Professional liability is thought of when there is a financial loss. A design flaw that causes the loss is different then when the mfg's process causes the loss. I suggest both coverages to eliminate the carrier from saying it should be professional and not GL. This is necessary if they are involved in the design.

As far as Railroad Protective, there is an exclusion on the Gl when there is construction work being performed within 50 Feet of a RR. The RRPLI provides coverage for this exclusion. It would be very unlikely that a carrier would exclude coverage for a mfg of a product being used by a worker on a RR.

Rlevine, are you saying that even if we get GL with products and Manufacturer's E&O along with RR protective that an injury to a railroad worker would not be covered if the product failed to properly alert the rail worker? (since GL excludes your work and the PL would only cover a financial loss)?

By the way, my client is the designer and manufacturer.

[rcenters]

Sorry, I meant role not roll.

The GL covers BI & PD. There is an exlcusion for your work. I had a client that streched out metal to make it smooth. The mfg who purchased and used the product sued. They alleged that the processing of the metal caused the thickness to be too small and would not be able to be used as intended. We provdied Mfg E&O attached to their Gl to cover those types of claims.

Professional liability is thought of when there is a financial loss. A design flaw that causes the loss is different then when the mfg's process causes the loss. I suggest both coverages to eliminate the carrier from saying it should be professional and not GL. This is necessary if they are involved in the design.

As far as Railroad Protective, there is an exclusion on the Gl when there is construction work being performed within 50 Feet of a RR. The RRPLI provides coverage for this exclusion. It would be very unlikely that a carrier would exclude coverage for a mfg of a product being used by a worker on a RR.

Rlevine, are you saying that even if we get GL with products and Manufacturer's E&O along with RR protective that an injury to a railroad worker would not be covered if the product failed to properly alert the rail worker? (since GL excludes your work and the PL would only cover a financial loss)?

By the way, my client is the designer and manufacturer.

The GL exclusion is "damage to your work"- and not simply " your work". . The apparent intent there, I believe, is that the GL does not pay for replacing the faulty, sheet metal, does not pay for rebuilding a house that the city ordered torn down because you built it too close to something, etc etc. But it would cover bodily injury or property damage caused by the product. Which brings up an interesting point- the product, in this case, in the example you give of it failing to work, is not "causing" the damage, it is instead failing to prevent it. And that, I must say, I do not know how that situation will interact with the CGL policy. But, to the best I can tell, it isn't the "damage to your work" exclusion that creates that ambiguity.

Also, I was thinking about this 50 feet of a railroad thing. Would it not be correct to say that there isn't an "exclusion" for COVERAGE for work within 50 feet of a railroad, rather it is simply that the definition of "insured contract" does not define indemnification of a railroad for construction or demolition within 50 feet of railroad property as an "insured contract"? Liability that you have in the absence of a contract is still covered, could you not therefore be sued by the injured worker directly and still have coverage? Question there might be to find out if he has been required to indemnify the railroad?

I think you're probably going to have to do a full due diligence here, such as specifically ask the carrier(s) you quote this with, as to whether it is their intent for the CGL form to cover an injury that occurs because the product fails to work- and get it in writing. And you'll want to fully explore an E&O policy as well- the words "failure to perform" reek of "other than BI/PD financial loss"- though I can't think of an example of one. Maybe after someone is hurt, the contractor relying on your product gets kicked off the job by the railroad, because the warning devices don't work, and sues your client for loss of revenues?

[gregcw]

I've been watching this thead for several days and while I understand the concepts of Manufacturer's E&O and Products Liability, it sounds to me like this is realy an issue of Warranty of the product, i.e. the product not doing what it was designed for because of conditions outside of the manufacturers control.

[rcenters]

You might be on the right track; but I would have thought that a warranty is only for replacement of the product? Not a big issue for a $50 or maybe even $250 product(except of course, for the possibility that thousands might be recalled at once)...?

Warranty insurance products aren't distributed through agents like us, or at least not that I've ever seen, so apart from product replacement I'm not sure what else they might cover.

[Rob]

I've been watching this thead for several days and while I understand the concepts of Manufacturer's E&O and Products Liability, it sounds to me like this is realy an issue of Warranty of the product, i.e. the product not doing what it was designed for because of conditions outside of the manufacturers control.

The prospect (insured) is the manufacturer and so he is concerned about suits brought against him for alleged design flaws, i.e. the product fails due to that and then someone is injured as a result. I think of a warranty as something that would replace the product if it failed.

[Shagster12]

Rob:
I agree that your concern is not a Warranty question. You are really looking at two basic exposures to the manufacturer;
1) There is an inherent design flaw which may cause a malfunction of the product which jeopordizes both persons and property. In which case the Mfg. E&O should be the appropriate cover.
2) Through an unforeseen event the product malfunctions causing BI / PD or both, and while the malfunction cannot be attributed to a design flaw the product never the less malfunctioned causing the damages to occur. In this case the Client should have a GL policy with complete Products coverage.

I recommend you obtain both covers for the insured and ideally from the same carrier to help avoid any other potential cover gaps. With a product of this nature and so much exposure to consider I don't believe you can go wrong having more coverage rather than less. There are too many ambiguities and cross-over causes of loss to consider to try to pare coverage down to one policy or the other... Recommend them both! Better safe than sorry......
Shagster

[Rob]

Rob:
I agree that your concern is not a Warranty question. You are really looking at two basic exposures to the manufacturer;
1) There is an inherent design flaw which may cause a malfunction of the product which jeopordizes both persons and property. In which case the Mfg. E&O should be the appropriate cover.
2) Through an unforeseen event the product malfunctions causing BI / PD or both, and while the malfunction cannot be attributed to a design flaw the product never the less malfunctioned causing the damages to occur. In this case the Client should have a GL policy with complete Products coverage.

I recommend you obtain both covers for the insured and ideally from the same carrier to help avoid any other potential cover gaps. With a product of this nature and so much exposure to consider I don't believe you can go wrong having more coverage rather than less. There are too many ambiguities and cross-over causes of loss to consider to try to pare coverage down to one policy or the other... Recommend them both! Better safe than sorry......
Shagster

Shagster, I agree and have recommended both and am going to attempt to procure both. However, one of my concerns was whether the E&O portion will clearly state that the coverage will apply to BI/PD due to malfunction. When I receive a quote, I'm going to need to speak with the carrier and have them clarify it in writing as to exactly their intent.