5/20/2015 12:46:00 AM
HEADLINES
Womack to Southwestern: Avoid “Claim Denied”
Most business risks are not covered under a commercial general liability contract, insurance agent Scott Womack warned Southwestern Fastener Association members.
“My 25 years of insurance experience lead me to believe that there are numerous promises made in most all Purchase Orders and Supplier Contracts that are not covered by insurance of any kind,” the certified insurance counselor from Sentry Insurance explained. “Keep in mind that being liable – with or without a contract – does not mean one’s insurance contract will respond.”
Womack urged fastener manufacturers and distributors have attorneys familiar with insurance examine all contracts and Purchase Orders.
Customers may still require their terms, but at least you know what your liability, Womack noted.
“It’s possible you might decide to purchase products recall or manufacturers Errors & Omissions coverage to transfer some of the risk to an insurance company,” Womack said. “Or you may stop selling to some of your customers. Or you can self insure.”
From an insurance perspective, is your business a fastener manufacturer or distributor? Womack asked.
As a “distributor” do you repackage? Womack asked. Do you put your business name on fasteners it distributes, making your business appear to be the manufacturer? Do you purchase fasteners directly from overseas suppliers that do NOT have a U.S. office? Do you have fasteners modified, painted or plated to customer needs?
“If you answered ‘yes’ to any of the questions, from an insurance coverage perspective, you may also be a fastener manufacturer,” Womack explained. “In certain instances, if your liability policy classifies your business as a distributor, and you are engaging in any of those actives, coverage issues could arise.”
Distributors can face defense costs just in showing they did not make, modify or alter the fasteners, Womack pointed out. A manufacturer’s insurance could be exhausted, sending the court to distributors for dollars to pay injured parties, he added. And a manufacturer may no longer be in business.
Product liability lawsuits can be brought against both manufacturers and distributors, Womack said. He recommends product insurance for both.
Be aware of what Purchase Orders call for, Womack advised. The P.O. may put the seller in position to warrant the goods.
Watch for phrases such as: “If during the warranty period, purchaser discovers any defect, error, non-conformity, omission or deficiency in the goods seller will promptly repair, re-perform, retrofit or replace the goods at seller’s sole expense.”
Expenses can include removing the seller’s fasteners from products after installation, Womack added.
Womack cited a sample situation of an oven sold to a school district. An upper shelf collapsed as a school employee was removing a hot pan, caused a broken wrist and burns on hands and arms. The employee filed for Workers’ Compensation.
The workers’ compensation carrier sued the over maker, but the oven manufacturer’s carrier found fault in the bolts. And the school district attorneys also blamed the bolts. The oven company sought damages for loss of profits, retrofit expenses for all the ovens in the marketplace – which included flying employees to replace the 24 bolts in every oven.
“Your bolts may not be covered if your bolts were not manufactured right,” Womack warned.
Insurance policies will include exclusions in the general liability contract, he warned.
• Business risk exclusions most likely affect a fastener manufacturer or distributor are: Damage to product, damage to impaired property or property not physically injure; and recall of products, work or impaired property.
• Some manufacturers that make component parts to the specifications of others may purchase Manufacturers Errors & Omissions Coverage.
• Womack noted “Additional Insured” endorsements are designed to allow the “Named Insured” to endorse their policy to respond to suits against “Additional Insurced.”
But Womack warned “Additional Insured” is usually “very limited in scope. Therefore a business should never rely only on the status of being an “Additional Insured” for liability protection.
• Another common “Additional Insured” endorsement is “Vendor’s Endorsement” that is specific to products. There are numerous circumstances that void the Endorsement. One example is re-packaging
Manufacturers may like “Vendor’s Endorsement” to encourage customers to use their fasteners and may be required by some distributors. But “Vendor’s Endorsement” may dilute limits and cause conflicts with claims defense, Womack pointed out.
The vendor insurance can lower product liability premiums for “a pure distributor” who has endorsements from all suppliers.
• The worst group to be sued by is an insurance company, Womack observed. “Because they have unlimited attorneys.”
• A company can bankrupt itself with too much insurance, Womack acknowledged. Web: Sentry.com
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