A product liability policy covers all sums (including the litigation cost) that you would be legally liable to pay as damages as a result of:

  • Accidental death / bodily injury or disease to a third party.
  • Accidental damage to the property belonging to a third party.

Thus, the product liability insurance covers any legal liabilities to third party arising out of injury or harm due to a product sold by a business

Any product can be insured under product liability insurance. The liability may arise out of factors such as:

  • Product defect which causes injury, loss, damage to a third party or his/her property
  • Packaging defect which compromises the safety of the product and causes harm to the third party.
  • Improper use of the product, absence of warning labels/ precautions, etc. which affects the performance or quality of the product.

Limit of Indemnity

Under the product liability policy, the “Limit of Indemnity” stands for the sum insured. This amount is determined based on two limits which are set for each accident that occurs during a particular policy period. These are- the Any One Accident (AOA) Limit and the Any One Year (AOY) Limit. The Any One Accident (AOA) Limit is the maximum sum payable for an accident, based on the nature of the product insured, the number of people affected, the type of damage, etc. Any One Year (AOY) Limit stands for aggregate of all claims that will be payable in a policy period. Typically, the ratio of AOA limit to AOY limit is selected from the following options:

Ratio of AOA Limit to AOY Limit

Option I


Option II


Option III


Option IV


This policy can be availed by product manufacturers, distributors, retailers and wholesalers. This is regardless of the fact whether the product that is insured is the final product or just a part of the final product. Some insurers also extend this policy to the Export Community, which is legally bound to take Product Liability Insurance

Limit of Indemnity

This policy does not cover liability arising out of or in connection with:

  • Product efficacy (product failing to perform its intended function)
  • Product recall. The policy doesn’t pay for cost incurred for repairing or reconditioning or modifying the defective part of the product.
  • Product guarantee
  • Terrorism, war and SRCC
  • Any professional services deficiency (that can be covered separately in professional indemnity insurance)
  • Personal injuries such as libel, slander (a sort of published false statement that is damaging reputation)
  • Fines, penalties and punitive.
  • Loss of Goodwill / loss of market

Add on Cover

  • Limited Vendor’s Liability (This policy can also be extended to cover vendors. You can get cover for liability arising out of sales and distribution of the insured product by named or unnamed vendors)
  • North American Jurisdiction Clause (covering export to American Countries)
  • Technical Collaborators Clause
  • Personal and Advertising Injury


Minimum Excess is 0.50% of the AOA Limit

Parameter for Premium Consideration:

Premium chargeable depends on the:

  • Risk group (products to be covered)
  • Turnover of products (for proposed period of insurance)
  • Sales territories
  • Limits of indemnity selected
  • Ratio of limits
  • Quality control system and R&D strength of the insured
  • Past Claims experience