Product liability pays for the harm. It does not pay to pull the product back.
A batch goes out with a fault. Nobody has been hurt yet, but somebody will be if it stays on the shelf. Getting it back is a recall, and a standard product liability policy is not built to pay for that. The two covers answer for different days.
Build the operations file Read the short answer firstPays after the harm is done.
Pays to stop it happening.
Health Canada expects to hear.
Does product liability insurance cover a recall?
Usually not. The Insurance Bureau of Canada describes product liability as cover that “Protects manufacturers’ and distributors’ exposure to liability for bodily injury or property damage caused by the negligent manufacturing of the product.” Injury and damage. Not the notices, the shipping, the storage and the disposal when you pull a product before it hurts anyone.
Recall cover is its own product. It pays the cost of getting the goods back, and some wordings add the customer’s lost sales while the shelf sits empty. Most liability wordings also exclude your own recall costs outright. So a company with product liability alone can be fully insured for the injury and completely uninsured for the recall that would have prevented it.
Health Canada does not leave the decision to you. Its mandatory reporting rule says that “if a company learns of an incident relating to a consumer product they manufacture, import or sell, they must tell Health Canada.” Once it is reported, the conversation about pulling the product is with a regulator, and the cost of that conversation lands on whichever policy you actually bought. Read Health Canada on mandatory reporting (opens in a new tab).
Four things to settle before a batch goes wrong.
Which policy pays for what
Liability for the harm. Recall for the retrieval. Write down which one you have and which one you do not, in one line each.
Whether the recall is yours to run
If you distribute someone else’s product, the recall may be theirs to fund. Or the contract may put it on you. Read it before you need it.
Whether your customers can claim their losses
A retailer that has to clear a shelf may invoice you for it. Some recall wordings pick that up. Liability wordings do not.
Your traceability
A recall you can scope to one lot is a small recall. One you cannot trace is the whole line. Batch records are an insurance matter, not just a quality one.
Three batches, three bills.
The fault found in time
A manufacturer caught a wiring defect before a single unit failed. Retrieval, notices and destruction ran to a serious bill. The liability insurer declined it. Nobody had been hurt, so nothing the policy paid for had happened.
The importer holding the bag
A distributor brought in goods made overseas. The factory would not fund the recall. The distributor’s contract had no clause putting it on the factory. It funded the recall itself.
The retailer’s invoice
A grocery chain pulled a product and invoiced the supplier for the shelf space and the labour. The supplier’s liability policy did not answer. A recall policy with customer loss cover would have.
The questions manufacturers ask about this.
Is recall cover expensive?
It depends on what you make and how well you can trace it. Food, children’s products and anything electrical sit at one end. Ask us with your product list in hand.
We only distribute. Do we need it?
You can be the one Health Canada hears from, and the one your retailer invoices. Whether the factory pays you back is a contract question, not an insurance one.
Does product liability cover the injured customer?
Yes. That is exactly what it is for. It is the retrieval before or after that it does not touch.
What if we recall voluntarily before anyone is hurt?
That is the case most liability policies exclude most clearly. A voluntary recall is a cost you chose, and only recall cover treats it as a loss.
Do we have to report to Health Canada?
If you learn of an incident with a consumer product you make, import or sell, Health Canada says yes. Read their page. The reporting duty is theirs to set, not ours.
Two that sit next to this one: replacement cost or actual cash value on your equipment, and why a distributor can be liable for goods it did not make.
Not the question you came with? Send it through the short contact form and we will answer the one you actually have.
Know which day your policy answers for.
Send us your product list and your current wording. We will tell you where the recall gap is.