Product and Professional Liability?
Which one is right with me?
We get asked this question too frequently. “I own a small manufacturing company, do I need Product Liability or Professional liability?” or “We overhaul transmissions, do we need Product or Professional Liability?”…
The answer is of course, “it depends on what precisely is being done at the facility”.
Products-Completed Operations Liability Policies – responds to claims by third parties for work performed and for products sold and delivered. This coverage applies when the provider has completed the work and/or the product is no longer in the possession of those who handled it in the marketplace, such as the manufacturer, wholesaler and retailer. In other words it has passed though the chain of commerce and is now with the end user.
Professional Liability Policies – Some professionals, due to their unique and specialized skills, may be subject to accountability as a result of the professional judgments they make. This policy responds to claims against professional judgments. The term professional implies intellectual skills versus skills used in an occupation or skills used in the production of a product. This is a very important distinction if a claim arises and action is brought about on the Professional Liability Policy. If the negligent act does not involve the use of a specialized skill or judgment, (qualifying one as a professional), coverage will be not be provided under a Professional Liability Policy.
Still confused? Let’s go through a few scenarios to illustrate the difference.
An IT Company developed a new billing software designed to access man hours from an employee payroll database, materials from inventory pull tag reports, and generate invoices. This process was supposed to drastically shorten the time frame to compile the data manually and speed up the billing cycle. After initial testing, the program was implemented on a test run, and subsequently integrated with their accounting software. Subsequently, an internal audit revealed that their profit margins had declined. An internal audit finally located the source of the discrepancy. Apparently the software was using raw cost information without taking any overhead costs into consideration. The client company sued to recover damages. The IT company’s insurance company refused payments under their General Liability policy, rather the settlement was made by their Professional Insurance carrier.
A Day Spa Resort provides certain services to their clients. Hair cuts, nails, pedicures etc. All claims for these services would be covered under their General Liability Policy, under the Product Liability limits. A client brought about a claim after an adverse reaction to a topical anesthetic after a micro dermabrasion procedure for skin smoothening The General Liability policy refused consideration of this claim as it was considered a medical procedure (indicating a professional liability). It was subsequently turned in to their Professional Liability carrier.
So, to summarize, a company may require both a Product / Completed Operations Policy as well as a Professional Policy as can be seen from the above examples. Call Commercial Global Insurance for a free analysis of your business to determine what sort of coverage you need……