Extended Product Liability Clause

Purpose

The AHB, in clause 7.8, exclude claims for damage to goods manufactured or supplied by the policyholder and any resulting financial loss, on the basis that this is conceptually a defect in the insured’s own product rather than damage to a third party’s property. The extended product liability clause is a supplementary condition that partially withdraws this exclusion, bringing certain follow-on losses back within cover.

Effect and limits

Typically covered is so-called further-processing or commingling damage: where a defective component is incorporated by a third party into a finished product or mixed with other materials, the clause can cover the resulting additional costs, such as sorting, removal and reinstallation costs. Excluded as a rule remain the cost of remedying the defect in the insured’s own product and pure precautionary recall costs where no third-party loss has yet occurred; a separate recall cost policy is needed for these.

Negotiation and practice

The scope of extended product liability cover is heavily negotiated and is usually subject to specific sub-limits, deductibles and sector-specific wording. Export-oriented manufacturers should in particular check whether the clause responds when goods are sold into higher-litigation markets, and how it interacts with the base product liability cover and any separate recall cost policy, to avoid coverage gaps in complex supply chains.