Another “your product” exclusion contained in the CGL deals with the potential liability caused by product recall. The exclusion’s purpose is to prevent the CGL insurer from becoming liable for this risk. I’ll explain this exclusion in two parts, starting with the when this exclusion applies. Here is the specific policy language: This insurance does not apply to (title of subsection) recall of products, work or impaired property … if such product, work or property is withdrawn or recalled from the market or from use by any person or organization because of a known of suspected defect, deficiency, inadequacy, or dangerous condition to it. Withdraw means “to take back or away,”[1] while recall is “an official order to return.”[2] The former is a voluntary action while the second is an official order. Both verbs are past tense, meaning each action is completed.[3] “Market” is the most commonly used noun to describe the place or location where goods are bought and sold[4] while “use” is the “application or employment of something for some purpose.”[5] The former implies that the good is still on the shelves while the latter connotes that the good has already been employed for some purpose. “Because of” is a conjunction, which means, “By reason of.”[6] The words following the phrase justify why the good was withdrawn or recalled. Here, there are three reasons:
The purpose of listing a group of nouns which describe the problem is to case as wide a net as possible with the intention of incorporating all known possibilities – which this description does well. [1] American Heritage Dictionary, Second College Edition, © 1985, p.1387 [2] American Heritage, p. 1032 [3] The Chicago Manual of Style, 16th edition, © 2010 p. 233 [4] The Concise Oxford English Dictionary 11th Edition, © 2005 p. 874 (“an arena in which commercial dealings are conducted.”) [5] American Heritage, p. 1331 [6] Oxford p. 119 [7] Oxford, p. 375 [8] American Heritage p.375 [9] American Heritage, p. 1399 [10] Oxford, p. 16 [11] Oxford 717 [12] American Heritage, p. 365 [13] American Heritage, p. 861
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Risks related to "your product" (which, for the purposes of this quick post, is a product made by the insured or work performed by the insured) are excluded from the standard ISO CGL policy (please see here, here, and here).
As of this writing, Boeing is experiencing problems related to their product. Several countries have banned one of their airplanes from service due to several recent crashes. This situation highlights several risks that are typically financed by a risk financing facility or "captive insurer." These include: 1.) The liability related to the product 2.) The cost of public relations damage to the company 3.) Some of the lost income caused by the problem 4.) The cost of recalling the product from the market 5.) Legal expenses related to the incident. For companies that make a product and place it into the "stream of commerce," a captive might make sense. The previous post discussing the “your work” exclusion explained the CGL’s coverage exception for the physical work performed by or on behalf of the insured. That exclusion also applies to the insured’s communications meant to assure a third party regarding the specific attributes or qualities of the insured’s work. Here is the exact wording of the exclusion. This insurance does not apply to property damage to your work arising out of it or any part of it. “Your work” includes warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work.” A “Warranty” is “an assurance by the seller of property that goods or property are as represented or will be as promised.”[1] The verb “represent” means, “to describe as an embodiment of a specific quality.”[2] Representation is a noun derived from the verb.[3] Both nouns are categories of the broader statements made by a seller to a buyer that represent certain aspects of the goods sold. This exclusion applies to five specific types of statements regarding goods:
The combined impact of these five adjectives is very broad and should cover all statements that the insured could potentially make about his “work.” For a further discussion of the concepts involved, please see the Uniform Commercial Code's discussion on warranty. [1] The American Heritage Dictionary, Second College Edition, © 1985, p. 1364 [2] Id at 1049 [3] The Concise Oxford English Dictionary, Second Edition, © 2004, p. 1511. The suffice -tion is used to make a noun from a verb. [4] Oxford, p. 537 [5] The American Heritage Dictionary observes that fitness means the good is “right or correct in view of the circumstances.” p. 508 [6] Oxford, p. 1174 [7] Online Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/quality, last visited on March 3, 2019 [8] American Heritage, p. 430 [9] Oxford. p. 1064 [10] Oxford, p. 47 [11] American Heritage, p. 1331 |
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