E-commerce platforms have allowed businesses to provide goods to consumers domestically and internationally. Going global can present various challenges, including packaging, promotional materials, and travel costs.
Another concern is how your product liability insurance would respond.
- Will your insurance protect you from international claims and lawsuits?
- If you are sued, who will represent you in that country?
- If you have a judgment against you, who will pay the claim?
Let’s review the policy limitations and possible solutions to help provide product liability coverage for your foreign business exposures.
The “Coverage Territory”
General and product liability insurance policies will designate a coverage territory in the policy definitions. The coverage territory will outline the geographical area the insurance policy will cover when certain events take place.
Many insurance companies will use a standard liability policy form published by the Insurance Service Office (ISO). Because insurance companies widely use the ISO liability policy verbiage, we will evaluate this policy’s “Coverage Territory” definition and how it specifically affects product liability coverage overseas.
There are three parts of the Coverage Territory we will need to consider when determining if the policy would afford product liability coverage:
- The geographical area of coverage
- Where the goods and products are made or sold
- Where the lawsuit is brought
The “coverage territory” means the United States of America (including its territories and possessions), Puerto Rico, and Canada. This is our initial geographical area. If any claims occur outside this area, the policy will not respond.
Goods & Products Made Or Sold
The ISO policy will expand the geographical area to “all other parts of the world” if the injury or damages occur from goods or products made or sold by you – the insured – in the United States, Puerto Rico, or Canada.
Suppose you have a product made in China but sold from the United States to a consumer in Australia. If your product injured the consumer, would your policy respond? I believe it would. Why?
- The product was sold by you in the Coverage Territory – United States
- Australia is considered “all other parts of the world.”
But we still need to consider the third item of where the suit is brought.
Although we have checked the boxes for where the claim occurred, we still need to explore where the suit needs to occur. The policy states the damages need to be determined in a suit on the merits in the United States, Puerto Rico, or Canada.
In other words, if your product injures someone in Australia, the suit for damages needs to be brought in the United States, Puerto Rico, or Canada. The ISO liability policy does not provide full worldwide coverage but limited worldwide coverage.
If you are conducting business outside the United States, the standard ISO policy may not provide you with the product liability protection you need. There are solutions available that can provide coverage for foreign exposures:
- Amendment of Coverage Territory – Worldwide Coverage (CG2422)
- Policy with “Worldwide” verbiage in the Coverage Territory
- Foreign Liability policy
Amendment of Coverage Territory – Worldwide Coverage (CG2422)
The Amendment of Coverage Territory is an endorsement that may be added to the ISO general liability policy. This policy amendment expands the coverage territory to “anywhere in the world,” with the exception of any country or jurisdiction that is subject to trade, economic sanctions, or embargo by the United States.
Although the terminology “anywhere in the world” is much broader than the standard policy language, sometimes foreign laws can interfere with or complicate the recovery of insured losses for the insurance company. There are stipulations in the amendment if this were to occur.
If the laws of the foreign country where the claim occurred prevent the insurance company from providing you with a defense, then you will be required to pay the defense costs, and the insurance company will reimburse you.
In addition, if the insurance company is prohibited from paying covered damages on your behalf, you would need to pay damages, and the insurance company would reimburse you.
If the Amendment of Coverage Territory endorsement is available, it may be a cost-effective solution for your business to provide coverage outside the United States.
“Worldwide” Coverage Territory
Some product liability policies do not use the standard ISO coverage territory definition and expand the coverage territory without adding any amendments to the policy.
In these cases, the definition of the Coverage Territory would say something like: “This insurance applies to claims made and acts committed anywhere in the world.”
This type of Coverage Territory language is not as common as the ISO version, but if it is an option for you, it is something you should consider.
Another option to consider is a stand-alone foreign liability insurance policy. You may want to consider this type of policy if you are:
- Importing/exporting raw materials or finished products, or selling services to customers outside the US
- Using the internet to advertise or sell products or services to customers in foreign countries
- Participating in multinational exhibitions, trade shows, trade fairs, and conferences
- Sponsoring trips, tours, or study groups abroad
- Performing service or repair work abroad
A Foreign Liability policy will provide additional coverages beyond the general and product liability insurance. A Foreign Liability policy could include:
- Workers Compensation Coverage
- Medical Relocation & Repatriation Expenses
- Business Travel Accident Coverage
- Kidnap, Ransom, and Extortion Coverage
- Medical Assistance Services
- Security Assistant Services
- Personal Assistance Services
Many insurance companies offering Foreign Liability packages will have representatives in hundreds of countries and territories with 24/7 access to staffed centers with multi-lingual coordinators, case managers, and medical and security staff.
Protect Your Business At Home & Overseas
It is important to understand the limitations of your product liability policy as it relates to foreign exposure and what options you have. Discussing these options with a professional insurance representative will allow you to make an informed decision on how to protect your business overseas.
Disclaimer: All insurance policies have limitations, conditions, and exclusions. Please refer to your policy for exact coverages and verbiage.