The Pitfalls of Postproduction Liability

If you are not careful, liability issues can arise even after the production process has ended. You may think your responsibility ends after the parts head out your door, but that is not always the case.

When your product enters the marketplace, you have a liability risk that may arise if your product causes or allegedly causes bodily injury or property damage. This makes commercial general liability insurance for products, completed operations, contractual liability, and owners and contractors protective coverage extremely important.

You should ask yourself these questions:

1. Are my policy limits adequate?
2. Does my coverage include all necessary extensions of coverage?
3. Does the policy territory extend to include all countries that I am shipping to?
4. Do I need product recall insurance?
5. Do all my suppliers and distributors involved in the manufacturing or distribution of my product carry appropriate liability insurance, and do I have certificates of insurance as proof of that?
6. Am I named as an additional insured on these policies, and will I receive 30 days' notice if they are canceled or materially changed?

Goods in Transit—Know Your Responsibility

If you are exposed to financial loss or have legal action against you, the terms of sale agreed upon between the buyer and seller dictate who is responsible for loss to goods in transit and when they are responsible.

Free on board (FOB) is a term that you should be familiar with if your company ships or receives parts or products.

International shipments use FOB Port, meaning that the seller pays for the transportation of the goods to the port of shipping plus loading costs. The buyer pays the cost of marine transport, insurance, unloading, and transportation from the port of arrival to the final destination.

Domestic shipments in Canada and the U.S. typically use FOB Destination, which means the seller pays shipping costs and remains responsible for the goods until the buyer takes possession.

A carrier's liability can be very limited, sometimes as little as $2 per pound or $50,000 maximum, unless a specific valuation is stated on the bill of lading. Further, usually a carrier is responsible only for loss or damage when it is due to its own negligence while the goods are in its care, custody, or control.

Every situation is unique, but many companies prefer their own transportation coverage.

This means you need to ask several questions to ensure the shipment is properly covered:

1. Am I responsible for purchased goods that are en route to me?
2. Who is responsible for the product until it is delivered and accepted by my customer?
3. Is my paperwork clear on what I am responsible for and not responsible for?
4. Do my invoices state that I am not responsible for transportation?
5. Do my internal procedures include a well-thought-out sign-off procedure to address the issues and challenges of goods in transit?
6. Can I rely on my common carrier to reimburse me for loss or damage to my goods?
7. How are the goods valued?
8. Is there a possibility of a general average in the event of loss or damage to my goods?
9. Does it make sense to buy insurance if I am not legally obligated to do so?
10. What is the scope of coverage?

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