What is an 'occurrence' in product liability insurance?
31 May 2005Picture this ... you have a successful small business importing wing nuts from Europe and on-selling to a local factory which uses the wing nuts to manufacture consumer goods. Those goods are sold throughout the country. Without warning, and over a period of a few years, some (interestingly, not all) of the goods fail, causing property damage. The factory sues your business.
What next?
You call your insurance broker and discover that your public and product liability insurance is likely to respond to the claim. You open the policy, it is triggered by an 'occurrence'. This is defined as:
An event including continuous or repeated exposure to substantially the same general conditions, which results in personal injury or damage to property neither expected nor intended from the standpoint of the Insured.
Luckily, your insurer grants partial indemnity, instructs solicitors and joins as third parties to the litigation the European producer of the wing nuts and their Australian agent.
Occurrence
This is not the end of the story, it is just the beginning. A very important question for you is what is the triggering 'occurrence' in this situation? The answer to this question will affect the limit of the indemnity that you are entitled to under the policy.
There are several possibilities. It could be:
- the date the wing nuts were loaded on to the boat for shipping from Europe to Australia
- the date the wing nuts arrived in Australia
- the date your business took possession of the wing nuts
- the date the wing nuts were first purchased by the factory
- each date the wing nuts were purchased by the factory
- each date the wing nuts were delivered to the factory
- the date when the wing nuts were first used by the factory to manufacture a product that subsequently failed
- each date the wing nuts were used by the factory to manufacture a product that subsequently failed
- the date the first product failed
- each date a product failed.
Far fetched?
This fact scenario is not as far fetched as you may be thinking. It reflects a case being run by the Perth Litigation goup which is currently in mediation. (In fact the Perth case contains more twists and turns which are even more far-fetched!)
Timely reminder
The difficulty in determining what the relevant 'occurrence' is and when it first occurred makes this case a timely reminder to all in the business of selling products to others, whether those products are manufactured in-house or merely imported and on-sold, to review the level of product and public liability insurance they have in place.
Questions to ask include:
- what are your products used for, if you don’t have any public and product liability insurance, should you get some?
- what level of indemnity do you have in place, would it be enough if one 'occurrence' triggered a number of product liability claims?
- have you changed insurers recently? If so, make sure that the cover is seamless, to avoid claims falling in between cover and make sure that full disclosure of the nature of your business and the existence of potential claims is made to the new insurer
- has your business changed recently? If so, now is a good time to review your insurance coverage.
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