Recall Product Liability

Managing Products Liability & Recall

Risk

Agenda

Product Liability Insurance Policy features

Product Liability Insurance Policy features

Product Liability Theory

Our understanding of Sundaram-

Clayton

Our understanding of Sundaram-

ClaytonProduct Liability Personal Injury

cases

Product Liability Personal Injury

cases

Coverage recommendedCoverage recommended

Why ICICI LombardWhy ICICI Lombard

Product RecallProduct Recall

Product Recall Insurance Policy features

Product Recall Insurance Policy features

Product Recall casesProduct Recall cases

Products & Product Defects

“Product” Tangible property Manufactured, Processed, repaired or sold

by you Beyond your control and custody

“Product Defect” the characteristics that renders the

Product unreasonably dangerous and harmful

Product can become defective due to..

Three Types of product defects Design Defects Manufacturing Defects (improper manufacturing/

assembling, Inadequate Testing) Defects related to marketing (transportation &

storage, Inadequate warning/Failure to warn through inadequate labelling, language, direction to use, warning manner, misleading literature, wrong manufacturing/expiry date, user not informed about emergency steps)

Duty of reasonable care ignored by the You can renderthe product “defective”

Defective product leads to.. “Accidents” a fortuitous event or circumstance, which is

sudden, unexpected and unintentional including resultant, continuous, intermittent or repeated exposure arising out of the same fortuitous event or circumstance

“Injury” death, bodily injury, illness or disease of or to any person

“Damage” actual and/or physical damage to tangible property

Defective products can leave manufacturer paying for liabilities

arising out of above accidents

Legal Theories of Product Liability Negligence & Deliberate Act Breach of warranty of fitness

In most of the US Courts, the case must be filed within three to five years of the sale of the product

Strict Liability (it concerned allegedly defective products rather than allegedly negligent conduct) Product was defective Defect was present at time of manufacturing marketing or

design Injury was due to that defect

In a strict liability case, if a product injures someone, even if the injury

results from improper use, the strict liability for the injury rests with the

manufacturer, wholesaler, and reseller, not the consumer.

Plaintiffs prefer Strict Liability litigation

The concept of Liability over the ages

Strict EU norms, Stringent product safety directives. EU members considering product liability on basis of “no fault” principle and wide definition of “Producer”

Most of the USA cases were settled out of court and Average cost in class action is higher than 1Mn USD

Improved Legal system of USA & EU has moved from that of Civil Justice system to wealth transfer

Pre IndustrialRevolutio

n

IndustrialRevolutio

n1900

to19851985-2000 2000

onwards..

CaveatEmptor

EuropeanOrigin of 3rd Party LegalLiability

Common LawConcept of 3rd PartyLiability

Compensation culture

WealthTransfer(BusinessBeware)

Tort Costs trend in U.S.

YearUS Tort costs

US GDPTort Costs as % of GDP

2002 233.2 10487 2.22%2003 245.7 11004 2.232004 261.7 11752 2.232005 (est.) 278.7 12469 2.242006 (est.) 296.8 13068 2.27

Tort Costs Relative to GDP (USD billion)

YearUS

Populations (millions)

US Tort Costs (USD billions)

Tort Cost per Capita

Inflation Adjusted* Tort Cost per

Capita1950 152 USD 1.8 USD 12 USD 911970 205 13.9 68 3211990 249 130.2 522 7352002 288 233.2 810 8282003 291 245.7 845 845*Restated in 2003 dollars, based on consumer price index

Costs Relative to Population

Source: Towersperrin (Tillinghast)

USA Tort System Cost & its split-up

Source: Tillinghast-Towers Perrin.

Where the Tort Dollar goes?

Defenses to Product Liability

Fault liability Plaintiff’s carelessness or misuse of product Alteration or misuse by someone other than

plaintiffs Passage of time

Breach of warranty cases Contract provisions

Strict liability cases Compliance with Government standards / Regulatory

norms

Product Recall

Calling back the defective product sold by you

Repair & replace with better one Product recall by you Product recall by your customer (OEM)

Objective of Product Recall is to avoid personal injuries & property damages, finally avoids

ProductLiability

Need

Risk transfer Superior defence by insurance company Capability to assist incase of large losses To maintain your customer’s confidence

Product Liability Insurance proves to be a Prudent method for risk transfer

Policy covers for

Over all product portfolio Product Liability suits against your officers/ directors Litigation expenses / Defense Cost Damages awarded by Courts

Compensation to the victims for injury and Property damage

Claim Series clause Retroactive cover (products sold during period of

insurance) Claims made during the policy Optional coverage for Your Technical Collaborators &

Distributors

Policy doesn’t cover

Warranty, pure financial loss & recall expenses Repair, modification or replacement of

defective/ allegedly defective products [separate covers available for above]

Products that left your control prior to period of insurance

Non-compliance of any regulatory/ statutory provisions

Fines, penalties, punitive and exemplary damages [non insurable by law]

Nuclear incidents & Asbestos related losses

Policy covers for

Products Guarantee - removal, repair, replacement, alteration or treatment of auto-component failed to perform intended function

Products Recall Product recalled by You – Policy Pays you back costs of

recalling auto-component to the your or your nominated agents’ premises

Product recalled by your customer/OEM (due to defect in your product) – Policy will reimburse you

Other Expenses Payable: media,transportation & temporary storage expenses, cost of product examination, destruction & replacement of auto-component

Policy doesn’t cover Third party liability

[This gets covered under Product Liability Insurance] Recall purely forced by govt authorities

[Products may be harmless/non-defective] Recall of the Products in your control & custody

[not been delivered to your customers] Recall solely due to wrong delivery of product

[there’s no harm posed to to third parties]

Recall as a result of deliberate product contamination[no defect in your Product]

War & Terrorism, Fines and Penalities[not insurable under liability policies]

Tyres/Patches/ Asbestos[extremely high cost of insurance]

Richard L vs. Honda Motor Company

In Feb 2001, Richard's son rear-ended a stopped truck while operating his motorcycle, resulting into multiple fractures

Reason for accident - performance of rear brake of motorcycle was reduced by heavy rain conditions

Manufacturer liable for – faulty brake Jury awarded USD 500,000 against Honda

To take care of the medical expenses Pain & suffering

Basis of settlement – not taking due care & testing for the conditions that product might be used in wet conditions

Source - internet

Michael Ronald vs. Toyota Motor Corp.

In 2002 August, Michael’s wife burned to death in her Toyota Camry

Accident reconstruction showed that the fire was fueled by an electric fuel pump that continued to operate post-collision

Plaintiffs served notice to Toyota - for supplying them with substantially harmful product

USD 5Mn settlement including structured payments for the children

Preventive measure taken by Toyota - most cars with electric fuel pumps now have inertia cut-off switches to prevent this type tragedy, the pumps shut down in a collision

Source - internet

Mitsubishi Motors - Brake failure case

October 19, 2002 a 39-year-old Mitsubishi truck driver was killed in an accident. The truck crashed into a concrete embankment in western Japan after its brakes failed

Mitsubishi failed to take appropriate safety measures (Due to similar problems, so far Mitsubishi Motors had announced more than 40 recalls of its vehicles)

Mitsubishi Motors paid the family Yen 11 Mn in damages, apologized, and promised to prevent a recurrence

Source - internet

Garry Brock vs. Caterpillar Inc. In June 1990, D8L bulldozer lost its braking power left

the access road, twisted sideways & and crashed into high wall

The driver, Garry suffered injuries to his cervical spine, ankle, lower back, and his psyche

USD 950,000 Jury verdict in favor of Brock USD20,000 for past medical expenses, USD 50,000

for future medical expenses, USD100,000 for lost earnings, USD630,000 for permanent impairment of Brock's future earning capacity, USD100,000 for past physical and mental suffering, and USD50,000 for future mental suffering

Basis of award - Caterpillar defectively designed the D9H bulldozer’s disc braking system, making it unreasonably dangerous

Source - internet

Keith McGill vs. General Motors During period 1988-1993, there were number of GM

vehicles involved in accident, causing injuries to passengers/drivers

Class Action on behalf of all persons & entities in the United States who currently own or lease or previously owned or leased a 1988-1993 Buick Regal, Oldsmobile Cutlass Supreme, Pontiac Grand Prix or Chevrolet Lumina

defective rear disc brake caliper pins GM was sued for USD 20 Mn (economic damages,

attorneys' fees and costs and injunctive relief) Basis of suite filed - negligent misrepresentation and

breach of express and implied warranty US Jury award amount USD 16 Mn

Source - internet

J Hasson vs. Ford Motor Company

California, 1982 – James, a 14 year college boy drove his friends to the top of Mount Olympus Drive and as the car descended, its brakes failed vehicle careened down the steep, curving street, eventually crashing into a fountain at the base of the hill

James suffered a severely fractured skull (total permanent physical disability)

Brake was found defective, that caused the accident Jury awarded plaintiffs USD 7.57 Mn in compensatory

damages and USD 4 Mn in punitive damages The jury found Ford to be negligent and strictly liable

in tort

Source - internet

GM Case – Axle Problems

In February 2005, the 33-year-old auto operator was fatally injured in two vehicle accident involving the General Motors vehicle operated by the defendant and a tractor-trailer, later he died

the axle broke off from the wheel of the decedents car during operation, causing him to lose control and smash head-on into the tractor/trailer.

accident was caused by a manufacturing defect in the axle of the decedents vehicle and the same was present at the time it left General Motors axle manufacturing plant in Buffalo and at the time it was installed on the vehicle

Gross Verdict – USD 321,536

Source - internet

John Deere Recall

Date: 5 November 2004 PRODUCT: Gator High Performance Series

Master Brake Cylinder Piston PROBLEM: The master brake cylinder

piston may fail resulting in loss of brakes presenting a potential for an accident

John Deere recalled all the affected vehicles

Total cost about USD 2.5 million

Source - internet

GM Corp. Fuel Filter 2004

Models: Saturn Ion (year 2003-2004)

Number Potentially Involved: 127,285

Defect: Certain passenger vehicles equipped with 2.2L 4-cylinder (L61) engines were built with a fuel filter that could corrode prematurely on the exterior surface. If corrosion on the exterior surface of the fuel filter progresses to the point of creating a hole in the shell, fuel droplets could form and drop to the ground. If an ignition source is present, a fire could result

Remedy: GM dealers replaced the fuel filter assembly

Source - internet

Hyundai, Kia, recall SUVs

During March 2005, sport utility vehicles recalled in USA (38,000 units)

Problems with their electronic stability program, or anti-rollover devices

vehicles (from the 2005 model year) Hyundai Tucson [30,558] Kia Sportage SUVs [7,619]

Source - internet

Valvoline recalled Brake Cleaner and Brake Parts Cleaner in November 2005

Pyroil® Brake Parts Cleaner and NAPA® Brake Cleaner Units: 2.8 million cans Manufacturer: The Valvoline Company, a Division of

Ashland Inc., of Lexington, Ky Hazard: The affected aerosol cans contain a defective spray

valve that might stick when depressed, possibly emptying the can’s flammable contents

Incidents/Injuries: Valvoline had received nine complaints about sticking spray valves. One consumer was injured when the product sprayed into his eye

Description: The recall involves 13-ounce cans of Pyroil® Non-Chlorinated Brake Parts Cleaner and NAPA® Non-Chlorinated Brake Cleaner.

Source - internet

American Honda Motor Co., Inc. Products recalled in August 2004: Honda FSC600 Number Potentially Involved: 7,494 Dates of Manufacture: November 2001 - December 2003 Defect: On certain motorcycles, the main stand is

attached to the frame with two brackets, nuts and bolts. The nuts are spot-welded to the brackets. If clearance exists between the nut and bracket, the spot welds may break when the bolt is torqued. Over time, a bolt can loosen and fall out. The main stand could partially or completely detach from the frame, interfering with or damaging the rear wheel, and increasing the risk of a vehicle crash. A completely detached stand falling on the roadway also creates a hazard for other vehicles

Source - internet

BMW – ABS Recall 2005 Models: BMW R12-00 GS Number Potentially Involved: 100 Dates of Manufacture: January - March 2004 Defect: On certain motorcycles, the Integral Anti-

lock Brake System (IABS) sensor sealing O-ring connection at the rear axle housing may have been damaged during the assembly process, causing oil leakage. If this happens, oil could contact the rear wheel and the rear wheel brake disk. The rider may not be able to control the motorcycle, which could result in a crash

Remedy: Dealers replaced the rear wheel IABS sensor sealing O-ring

Cost of recall: USD 150,000

Source - internet

Mitsubishi Fuso Truck & Bus – Recall 2004

Scope of recall has been widened from 45,000 to 112,000 units

Accidents involving its trucks that resulted in a fatality in 2004

A wheel fault leading to crash of vehicle, the wheel fault had been discovered as early as May 2002

Cost: recall cost for 45,000 truck was ¥3bn (USD27m)

Source - internet

BMW Recall – August 2004 Power Train: Clutch Assembly : Pedal/ Linkage Potential Units Affected: 400 Summary: If the vehicle is in first gear, and

moving slowly, with the accelerator pedal held in a constant position of low engine speed and with the clutch pedal held in a partially depressed position, engine speed may increase

Consequence: The vehicle could accelerate unexpectedly, resulting in a crash

Recall begin on September 8, 2005 Remedy: DEALERS reprogrammed the vehicle’s

digital engine management control unit Cost: USD 1.5 million

Source - internet

Firestone Tyres – Recall & Liability 200 deaths in accidents due to car rollovers linked to

Firestone tyres used in Ford SUVs Tyre-tread separation lead to vehicle roll over &

result into accident. NHTSA found tread separation claim rate is higher (20 time higher than others) & Ford explorer SUV rolls over more than other SUVs

After 5 deaths & 14 SUV crashes were linked to their tyres (steeltex tires), recall was announced by Firestone on 26 Feb 2004

Scope of recall: the company had to recall 17 million tyres, total cost of this to the company was USD 1.5 billion. It took 2 years for complete recall of 17 million units and it was done in phased manner. First recall was from the warm weather countries, as increase in temperature can act as catalyst in tread separation

Source - internet

Isuzu Rodeo Recall in 1994 Component: Engine and Engine Cooling Potential Units Affected: 1,22,297 Summary: Constant expansion and

contraction of the cylinder head caused the camshaft seal end plug can become dislodged from the cylinder head. This allowed the oil to leak from the camshaft

Consequence: this caused engine damage and engine fire from the oil leaking onto the hot exhaust system

Remedy: Dealer installed camshaft end seal plug retainer plates

Recent potential recall cases of faulty auto-components - An update

GM plans to recall 2 million vehicles GM announced six recalls on April 25, 2005 [Seat belt

trouble, fuel pump wires and parking brakes are latest problems] Chevrolet Suburban and Yukon XL from 2000 and 2001 for

possible overheating of fuel pump wires that could lead to stalling, failure to start, fuel leaks or inaccurate fuel level readings. The recall covers 332,202 vehicles.

Sierra pickups, the 2500 and 3500 series, between 2001-04, to repair the parking brake. The recall only affects trucks with manual transmissions, a total of 142,585 vehicles. Friction can lead to parking brake failures, which could allow unattended vehicles to move

A brake problem with 69,037 2005 Buick Lacrosse and Buick Allure (sold only in Canada) sedans has led to a recall to repair a clip that secures the brake pushrod to the brake pedal arm pin. The clip could bend and come off, causing loss of braking power

Source - internet

Toyota recalls May 18, 2005

Problems with the front suspension that could hinder steering

The problem could force drivers to exert more effort when steering, allow the vehicle to drift and increase noise from the suspension.

The company had confirmed six cases, but that there were no injuries associated with the problems

Toyota has recalled 750,000 pickups, SUVs Cost in excess of USD 10 million

Source - internet

GM Recalls over 98,000 Trucks

11 Jan 2005 - General Motors Corp. recalled more than 98,000 pickups, vans and sport utility vehicles

Vehicles affected by the recall are from the 2000 model year and include Chevrolet C/K and Silverado pickups and Suburban SUVs. GMC Savana vans are also affected, along with GMC Sierra pickups and Yukon XL SUVs

Potential problem with their power steering and braking systems, can hamper the ability to stop or steer the vehicles stems from fractures in their hydraulic pump driveshafts

Source - internet

Mercedes-Benz Recall 2005

E-Class and CLS-Class Cars (1.3 million units) Problem: Electrical (alternators and Batteries)

and braking system faults Replacement of alternators' voltage regulators on

Mercedes-Benz models equipped with six- and eight-cylinder engines built between June 2001 and November 2004. New battery control unit software fitted.

Source - internet

Several Volkswagen Models Recalled

In December 2004 Volkswagen recalled 369,284 cars

The automaker also recalled 19,284 Golf, Jetta, Beetle and Passat cars from the 2004 to 2005 model years

Reports of leaking fuel pumps and defective hazard-light switches

Leaking diesel-fuel pump which could lead to a fire

Source - internet

Evaluating your product liability & recall risk and opting for right coverage Risk is function of

Product Type of component, Utility/Criticality, USA Canada

EU exposure, markets, batch features, Quality & manufacturing, its end user, sales [e.g. components used in motorcycles & cars are riskier than the one used in Tractors & Industrial vehicles]

Severe & frequent liability claims due to Educated & Informed consumers – Your exports to

Europe, US & emerging education level of Indians Plaintiffs interaction (e.g. class action suite) Strong Consumer courts/Juries – Strong EU & US

legal system and Emerging Indian litigation scenario

Most recent EU/US liability awards pertaining to all above combined

Average Limit by Industry* - Global Trend

2002 Rank Industry segment Average Limits (USD M)

2001 Rank

1 Chemicals & Pharmaceuticals 214 1

2 Mining & Energy 174 3

3 Transportation Equipment 162 2

4 Utility (Non Equipment) 156 4

5 Telecommunications 125 6

6 Primary Metals, Leather, Stone 101 11

7 Electric equipment 95 16

8 Transportation Services 94 5

9 Misc. Manufacturing 89 9

*Source: Swiss Re Sigma Report

Proposed Coverage Limit of Indemnity

Product Liability: as decided Product Recall: as decided

Scope/Jurisdiction: worldwide including North America Product: aluminium components made from die

casting processes Policy wordings: claims made Retroactive date

Product liability:AS per earlier policy Product Guarantee & Product Recall: Policy

inception Extentions: Vendors liability & Technical collaborators

Liabilities Overview

Product Liability Product recall (First Party and Third

Party) Impaired Product Product Guarantee

Product LiabilityCoverage Main Exclusions

Pays compensation for Third Party Bodily Injury (TPBI) Third Party Property Damage (TPPD) arising out of the insured’s product

1)Damage to any product or part thereof2)Product guarantee3) Product recall4) Contractual liability, except for liability that would attach irrespective of whether a contract were in place5) Pollution, except for sudden and accidental6) Failure to take reasonable precautions

Triggers: Bodily Injury or Property Damage is alleged to have occurred due to the use of your product, which is defective due to an alleged negligent act on your part

Product Liability (Cont’d)Key Considerations Relevance

Claims made or Occurrence based policy

Is it likely that a product defect would give rise to a defect soon after use or much later?

Duty to defend or right to defend policy

Does the insured have expert in-house legal counsel with knowledge of laws of other countries and does insured wish to control the claim negotiations and settlement process? - RTDDoes the insured need expert legal advice in the country in which a claim is likely to arise? - DTD

Deductible or Retention

A deductible limits the amount the insurer has to pay in excess over the deductible up to the policy limit. A retention does not reduce the amount the insurer has to pay; thus, the insured has the Retention + the Full Policy Limit at his disposal.

Definition of Product Does it include :designed, specified, formulated along with manufactured, constructed, installed, sold, supplied, distributed, treated, serviced, altered, or repaired by or on behalf of the insured?

be deemed to be any advice, consultancy, design, plan, specification, formula, packaging, instructions for use, or similar?

LimitRetention +

Deductible

Product RecallCoverage Main ExclusionsThe removal of a product from the market after an investigation into the product a) identifies a defect and b) provides sufficient reason to believe its use is likely to give rise to a TPBI or TPPD. The intent of the is to prevent TPBI and TPPD which could give rise to a product liability claim.

TPBI and TPPD

First Party Product Recall – this coverage section pays for the product recall expenses of the Insured, who may be manufacturing and directly selling the product, and thus may initiate the recall himself

Cost, expense to repair, recondition, decontaminate or otherwise treat the recalled product to render it marketableProduct Recall Expense LiabilityImpaired Property ExpenseProduct Guarantee

Third Party Product Recall – this coverage section pays for the product recall expenses incurred by a Third Party who must initiate a product recall which the Insured is legally liable to pay

Cost, expense to repair, recondition, decontaminate or otherwise treat the recalled product to render it marketableProduct Recall ExpenseImpaired Property ExpenseProduct Guarantee

Tata-AIG and Indian Market Agreement Policies provide Third Party Product Recall Cover.

Product RecallCoverage Main ExclusionsThe removal of a product from the market after an investigation into the product a) identifies a defect and b) provides sufficient reason to believe its use is likely to give rise to a TPBI or TPPD. The intent of the is to prevent TPBI and TPPD which could give rise to a product liability claim.

TPBI and TPPD

First Party Product Recall – this coverage section pays for the product recall expenses of the Insured, who may be manufacturing and directly selling the product, and thus may initiate the recall himself

Cost, expense to repair, recondition, decontaminate or otherwise treat the recalled product to render it marketableProduct Recall Expense LiabilityImpaired Property ExpenseProduct Guarantee

Third Party Product Recall – this coverage section pays for the product recall expenses incurred by a Third Party who must initiate a product recall which the Insured is legally liable to pay

Cost, expense to repair, recondition, decontaminate or otherwise treat the recalled product to render it marketableProduct Recall ExpenseImpaired Property ExpenseProduct Guarantee

Product Recall (Cont’d)

Additional Exclusions to Product Recall in some policies

1) when such decision is forced upon the assured by any Government or Public Authority and which the Assured would not have made but for the intervention of the said government or Public Authority. 2) which have not been delivered to customers by the Assured and which remain in the care custody and control of the assured or its parent or subsidiary or associated companies. 3) solely as a result of their having been mis-delivered or mis-directed by or on behalf of the Assured.4) where recall is brought about solely due to exposure to weather or due to external loss or damage or gradual deterioration. This exclusion shall not apply where a defect in the Product supplied is merely exacerbated by exposure to weather or the passage of time. 5) as a result of deliberate Product contamination or alleged deliberate Product contamination. 6) as a result of the Assured’s liability to pay any import duties or customs or Excise charges or Value Added Tax incurred before the delivery of the Products to the assured.

Product Recall (Cont’d)Key Considerations

Which of these expenses are relevant to your company?

Costs Covered under Product Recall

(Check whether he policy includes a time limit – expenses payable for the first 12 months from discovery of a defect?)

Advertising Finding, tracing, sorting outTransportation, storage or packaging in order to return the defective product to the Insured Replacement (Dismantling and Fitting): the costs of dismantling defective products and fitting new products free of defects except for the costs of the new product itself Examination: the costs of examination of the Insured Product(s) to find out the appropriate measures (repair, replacement or disposal) Extra costs of labor, transportation, storage, travel expenses, hotel stay associated with the aboveRepair: the costs of repairing without replacing (dismantling and fitting) the defective products provided that this is cheaper than to deliver a new product free of defects (Repair provided in Indian market agreement wording )


Key Considerations Relevance

Definition of Product Defect Any existing or suspected impairment, contamination or mis-labeling of any of the Insured Product(s) resulting from or caused by an error or a fault in the design, performance, specification, manufacture, blending, mixing, compounding, packaging, or labeling (including instructions for use), which causes, or presents a substantial likelihood of causing, injury.

Defect does not include any actual, alleged or threatened condition arising out of malicious alteration or malicious contamination of goods or products.


Key Considerations Relevance

Issued on a claims made basis. Thus it is important to have a Retroactive Date to ensure continuity of cover from the first year of the policy and an Extended Reporting Period should the policy not be renewed.

It is a right to defend policy It is a right to defend policy, though legal expenses are more likely to occur for a product liability claim.

Impaired PropertyCoverage ExclusionsPays Impaired Property Expense - reasonable and necessary cost incurred during the 12 month period commencing on the first day such costs are incurred by reason of a Covered Incident, if such costs are incurred solely as a result of impairment of tangible property, other than Your Product(s), that cannot be used or is less useful because it incorporates Your Product(s) that is known to be defective, deficient, or inadequate and if such property can be restored to use by the repair, replacement, adjustment or removal of Your Product(s).

1) Product Recall Expense2) Product Expense Liability3) All other exclusions applicable to the TATA-AIG policy mentioned in slide no. 13

These costs are limited to the following:1.The total amount of refunds you give to purchasers, not to exceed the cost of the goods sold.2.The costs to repair Your Product(s), including the cost to return Your Product(s) to the purchaser, and the cost to repair unsold stock.3.If Your Product(s) cannot be replaced, the cost to produce or acquire alike replacement product, including the cost to return Your Product(s) to the purchaser, not to exceed the cost of goods sold; or4.If Your Product(s) cannot be repaired, reconditioned, decontaminated or otherwise treated so as to render it marketable, the cost of unsold finished stock.

Product Guarantee

Coverage Exclusions

Pays for the costs of removal recovery repair alteration treatment or replacement of any Product (or part thereof) which fails to perform the function for which it was manufactured designed sold supplied installed repaired dispatched or delivered by or on behalf of the Assured

InjuryDamage other than to the Product and/or Works

Issued on claims-made basisWording available from the Re-insurance market

Financial Loss

Coverage Exclusions

Financial Loss: Pays for damages and costs and expenses arising as a result of any financial loss which is incurred by customers or third parties as a result of any Product (or part thereof) which fails to perform the function for which it was manufactured designed sold supplied installed repaired despatched to delivered by or on behalf of the Assured

InjuryDamage other than to the Product and/or Works

Issued on claims-made basisWording available from the Re-insurance market

GlossaryTerm Definition

Retroactive Date

The date after which claims made and reported to the insurer will be admitted by the insurer. The Retroactive Date could be earlier than the Policy Inception Date, and is given on claims made policies to provide continuous coverage for claims that may arise and be reported after the expiry of earlier, expired policies.The date stated in the Schedule from which either products were supplied by or on behalf of the Assured, or on which Contracts undertaken by the Assured commenced.

Extended Reporting Period

A period of time after the expiry of the policy offered to the insured to report claims that arose during the policy period but were reported after the policy period. A 30-60 day ERP is sometimes offered free while a 365-day ERP is offered for a premium.

Policy Territory

The place where your product is used and causes injury/damage.

Policy Jurisdiction

The place where the claim is brought.

LOSS OF PROFITS LOSS OF PROFITS

INSURANCEINSURANCE

LOSS OF PROFITS LOSS OF PROFITS

INSURANCEINSURANCE

ALSO CALLED ASALSO CALLED AS

CONSEQUENTIAL LOSS INSURANCECONSEQUENTIAL LOSS INSURANCE

BUSINESS INTERRUPTION POLICYBUSINESS INTERRUPTION POLICY

WHEN LOP CAN BE ISSUEDWHEN LOP CAN BE ISSUED

THERE SHOULD BE A MATERIAL DAMAGE POLICY

MD PROVISO ATTACHES LOP TO MD POLICY (MATERIAL DAMAGE)

PERILS COVERED, CONDITIONS, WARRANTIES SIMILAR TO MD POLICY

CLAIM ADMITTED ONLY WHEN ADMITTED IN MD POLICY (EXCEPTION EXCESS PROVISION

TYPES OF TYPES OF POLICIESPOLICIES

FIR ELOP

E NGINE E R ING LOPMACHINE R Y INS. LOP

BOILE R PR . PLANT LOP

PR O J E C T INSUR A NC EE A R / C A R

A D V A NC E D L O P

LOPPOLIC Y

SUBJECT SUBJECT

MATTER OF MATTER OF

INSURANCEINSURANCE

GROSS PROFIT OF THE INDUSTRY

METHODS OF ARRIVING METHODS OF ARRIVING

AT GROSS PROFITAT GROSS PROFIT

DIFFERENCE METHODADDITION METHOD

EXTRACTED FROM TRADING ACCOUNT

T/O - V.C. = G.P.TURNOVER LESS VARIABLE CHARGES IS GROSS PROFIT

VARIABLE CHARGES ARE CHARGES WHICH VARY IN DIRECT PROPORTION TO T/O

DIFFERENCE METHOD

TRADING ACCOUNT

OPG STOCK 400 PURCHASE 1450

OF RAW MATERIAL

FUEL POWER 350 WAGES 800 FREIGHT 200 GROSS 800

PROFIT

SALES 3500 SALES RETURN 200

CLOSING STOCK 700

Cr.Dr.

40004000

RUPEES IN CRORES

TRADING ACCOUNT

OPG STOCK 400 PURCHASE 1450

OF RAW MATERIAL

FUEL POWER 350 WAGES 800 FREIGHT 200 GROSS 800

PROFIT

SALES 3500 SALES RETURN 200

CLOSING STOCK 700

Cr.Dr.

40004000

VARIABLECHARGES

SALES

RUPEES IN CRORES

T/O - V.C. = G.P.

EXTRACTED FROM PROFIT & LOSS ACCOUNT

N.P. + INS. S.C. = G.P. NET PROFIT PLUS INSURED STANDING

CHARGES IS GROSS PROFIT

(RENT PREMISES)

STANDING CHARGES ARE CHARGES WHICH ARE CONSTANT IRRESPECTIVE OF LEVEL OF T/O AND ARE PAID OUT OF EARNINGS

INSURED CHOOSE TO OMIT CERTAIN S.C. FOR INSURANCE

ADDITION METHOD

PROFIT & LOSS ACCOUNT

RENT 120 SALARIES 200 RATES & 40

TAXES ADVERTISING 20 POSTAGE 75 DEPRECIATION 25 PRINTING & 40

STATIONERY NET PROFIT 480

BY GROSS 800 PROFIT

BY INTEREST ON 180 INVESTMENT

BY RENT 20 RECEIVABLE

Cr.Dr.

1000 1000

(RUPEES IN CRORES)





BY GROSS 800 PROFIT

BY INTEREST ON 180 INVESTMENT


ADVT. NOT INCLUDED AS S.C.

Cr.Dr.

1000 1000

RUPEES IN CRORES

INSUREDSTANDING CHARGES





BY GROSS 800 PROFIT

BY INTEREST 180 ON INVESTMENT


NET PROFIT ONLY FROM MAIN TRADING ACTIVITY

Cr.Dr.

1000 1000

(RUPEES IN CRORES)

DIFFERENCE METHOD EXTRACTED FROM TRADING

ACCOUNT T/O - SALES = G.P. TURNOVER LESS V.C. IS GROSS

PROFIT

ADDITION METHOD EXTRACTED FROM PROFIT & LOSS

ACCOUNT N.P. + INS. S.C. = G.P. NET PROFIT PLUS INSURED

STANDING CHARGES IS GROSS PROFIT

S.I. UNDER L.O.P G.P. x INDEMNITY PERIOD = S.I. INDEMNITY PERIOD IS BASED ON

INTERRUPTION HAZARD INTERRUPTION HAZARD IS AN

ESTIMATION OF THE MAX TIME NEEDED FOR BUSINESS TO RESUME NORMALCY IN THE EVENT OF WORST HAZARD

SUM INSURED

ANNUAL G.P. IS MINIMUM S.I. MINIMUM INDEMNITY PERIOD IS 3

MONTHS MAXIMUM INDEMNITY PERIOD IS 36

MONTHS G.P. SHOULD BE ESTIMATED FUTURE

G.P. BASED ON TREND OF THE INDUSTRY INCLUDING POLICY & INDEMNITY PERIOD

ESTIMATING FUTURE G.P.

FINANCIAL YR. G.P.(1994) = 10 CR.

POLICY PERIOD 1.4.95 - 31.3.96 INDEMNITY PERIOD = 2 YRS TREND OF INDUSTRY = 10%

INCREASE FUTURE G.P. POLICY PERIOD 1 YEAR 10 CR. + 10% 11 Cr. INDEMNITY PERIOD 2 YEAR 11 Cr. + 10% 12.1 Cr. 3 YEAR 12.1 Cr + 10% 13.31 Cr.

RATING FACTORSTYPE OF INDUSTRYINDEMNITY PERIODNATURE OF INDUSTRY TEA/

PETROCHEMICAL/CONTINOUS PROCESS INDUSTRY

PETROCHEMICAL COMPLEX

PERFECT SUITCASE

SPECIFICATIONTERMS IN LOPTURNOVER MONEY PAID OR PAYABLE TO INSURED FOR

GOODS SOLD & DELIVERED & SERVICES RENDERED IN COURSE OF BUSINESS AT A PREMISES

PERIOD BEGINNING WITH THE OCCURANCE OF DAMAGE AND ENDING NOT LATER THAN _____MONTHS THEREAFTER DURING WHICH THE RESULTS OF BUSINESS SHALL BE AFFECTED IN CONSEQUENCE OF THE DAMAGE

INDEMNITY PERIODDATE OF LOSS DATE OF NORMALCY

NET PROFIT NET PROFIT ARE RESULTS FROM

BUSINESS AFTER DUE PROVISION OF ALL STANDING CHARGES & DEPRECIATION BUT BEFORE DEDUCTION OF TAX ON PROFIT

NOT TO INCLUDE PROFIT FROM INVESTMENT & CAPITAL ITEMS

NONO

ANNUAL TURNOVER ONE YEAR BEFORE DATE OF LOSSONE YEAR BEFORE DATE OF LOSS DATE OF LOSS 12/3/96DATE OF LOSS 12/3/96 12/3/95 TO 11/3/9612/3/95 TO 11/3/96 TO FIND THE TREND AND APPLY TO FIND THE TREND AND APPLY

ADJUSTMENT CLAUSEADJUSTMENT CLAUSE

12/3/9611/5/96

STANDARD TURNOVER

TURNOVER DURING THAT PERIOD IN THE TWELVE MONTHS IMMEDIATELY BEFORE THE DATE OF DAMAGE WHICH CORRESPONDS WITH THE INDEMNITY PERIOD

12/3/94 TO 11/5/94

12/3/9511/5/95

INTERRUPTION PERIOD

PERIOD FROM THE DATE OF LOSS TILL THE INDUSTRY RETURNS TO NORMALCY

12/3/95 - 11/5/95

12/3/9511/5/95

INDEMNITY IN LOP

CLAUSE (a)CLAUSE (a) REDUCTION IN T/O X G.P. RATIOREDUCTION IN T/O X G.P. RATIO CLAUSE (b)CLAUSE (b) INCREASED C0ST OF WORKINGINCREASED C0ST OF WORKING

CLAUSE (a) REDUCTION IN TURNOVER IS REDUCTION IN TURNOVER IS ADJUSTED STANDARD T/O-- T/O DURING ADJUSTED STANDARD T/O-- T/O DURING

INTERRUPTION PERIOD INTERRUPTION PERIOD G.P. / TURNOVER x 100 = G.P RATIO G.P. / TURNOVER x 100 = G.P RATIO

INC. COST OF INC. COST OF WORKINGWORKINGINC. COST OF INC. COST OF WORKINGWORKING

NECESSARILY & REASONABLY INCURRED SOLE PURPOSE OF AVOIDING OR DIMINISHING

REDN IN T/O DURING INTERRUPTION PERIOD NOT TO EXCEED ECONOMIC LIMIT (MEMO 2) N.P+INS S.C./ N.P. + ALL S.C.

Recall Product Liability

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