May 05, 2016 Articles

Product Liability and Construction Insurance: Updates on Key Provisions and Exclusions

The majority rule is currently that defective products and construction defects causing damage to property or bodily injury constitute “occurrences” under most CGL policies

by Joseph D. Jean and Matthew D. Stockwell [1]

A History of Product Liability and Construction Insurance

Liability insurance coverage began to develop and take its modern form in the early twentieth century. The inspiration for product liability insurance is, unsurprisingly, tort law, because of the traditional concern that one’s products may harm third parties.[2] Because a manufacturer, distributor, or supplier of a good can be held liable for injuries to persons or property caused by defects in the good, product liability insurance protects those entities in the chain of distribution against such losses.[3]

The need for product liability insurance became apparent with the evolution of product manufacturing and the resulting expansion of product liability under tort law. The industrial revolution at the turn of the twentieth century led courts to impose levels of liability harsher than mere negligence on manufacturers. In 1960, the Supreme Court of New Jersey issued its opinion in Henningsen v. Bloomfield Motors, Inc., holding that strict liability applied to all defective products in the chain of distribution.[4] The expansion of strict liability to all of those involved in distributing the product (manufacturer, wholesaler, and retailer) led businesses to recognize the grave risks of tort liability for injuries arising from defects found in their goods. Product liability insurance became a popular way for businesses to protect themselves and limit their liability.

The need for insurance coverage for protection from claims of defective construction also increased significantly during the twentieth century. In 1969, for example, the standard form commercial general liability (CGL) policy was revised because it did not distinguish between work done by a contractor and that done by subcontractors it hired, causing coverage problems for contractors.[5] The 1969 revision expanded coverage for property damage to work performed by an insured contractor or its subcontractors. The purpose of this change was to afford protection to an insured contractor for damage to the insured’s completed work arising from the work of its subcontractors or damage to work completed by an insured contractor’s subcontractor when the damage arises from the insured’s work.[6]


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