10 Insurance Questions Personal Transportation Manufacturers Should Ask About Their Coverage2

In our recent article, “10 Questions Personal Transportation Manufacturers Should Answer Before Selling a New or Redesigned Product,” we identified areas that should be addressed before a new product goes to market. One of the areas we highlighted was the importance of purchasing the right insurance for your business. In conjunction with experienced insurance broker Brandon Schuh, who specializes in product liability policies for new and developing products, we offer the following 10 specific insurance questions you should be able to answer before you start selling your new or redesigned product:

1. Occurrence or claims-made policy?
   An occurrence policy is triggered when the date of loss (the accident) occurred, while a claims-made policy is triggered when the claim is made. While the generally lower cost of a claims-made policy can be appealing, in a high claims frequency and potentially high severity environment, that decision may prove to be more expensive in the end when your coverage runs out.
2. Excess liability/umbrella policy?
   In the early stages of a start-up company, it is often tempting to limit coverage in exchange for smaller premiums. However, this decision can create substantial risk to a company when a high severity incident occurs. The security provided by an excess or umbrella policy should be considered.
3. Are the products properly defined?
   A lack of understanding of the products being sold or flexibility to add new or redesigned products can cause coverage to be denied. It is important to ensure that your policy covers the products you are currently selling as well as those coming to market during the policy period.
4. Do you need a “step-down” insurance rate?
   Insurance rates predicated on forecasted sales can help young companies lower their premiums. However, when sales exceed expectations, a “step-down” rate can provide added protection against rates climbing too high. Make sure your broker is prepared for this issue.
5. Do you understand your policy’s exclusions?
   Policy exclusions in the product liability space—such as for progressive injuries, punitive damages, and other things—can change your exposure picture dramatically. Make sure your broker is familiar with all your options and their impact on policy pricing to ensure that you get the protection you expect.
6. Have you chosen the right deductible or SIR?
   Selecting a small deductible or self-insured retention (SIR) policy can be very tempting, but such plans can backfire, resulting in loss of coverage or exorbitant premiums down the road. Choosing a slightly higher deductible or SIR can give you more control of your claims, which can lead to lower claim payouts, lower long-term premium costs, and protection of your company’s reputation.
7. How are coverage disputes resolved? 
   When disputes arise about whether a claim falls within your policy, it is important to know how and in what venue such disputes will be resolved. Some policies default to dispute resolution language that may not be favorable to your company. Make sure you negotiate language that is acceptable.
8. Do you want coverage for recall costs?
   Recalls of consumer products have grown in frequency and cost. If you want added protection for your business, consider a policy or rider that adds this additional protection.
9. Does “batch coverage” make sense for your business?
   Some products are manufactured in batches or distinct runs. Batch coverage turns all claims that arise from a bad batch or run into a single event requiring the payment of only one deductible or SIR, instead of a payment for each claim. When appropriate, batch coverage can provide significant out-of-pocket protection.
10. Are you protected after you sell your business? 
    When a business is sold, it is important that both the seller and buyer are protected for post-sale claims. As part of any business sale, coverage for such claims should be addressed.