In most small product businesses, product liability coverage sits inside the general liability policy you inherited, so start there. Check five things. Does it respond to products the seller sold before closing? Do the products limits meet your retailer and customer contracts? Do your suppliers' vendors endorsements name your company? Who stands behind imported goods? And is recall covered at all? Under a standard general liability policy, it usually is not. This guide is for buyers of manufacturers and distributors who want to know whether the seller's coverage fits the company they now own.
The short answer
- Product liability usually lives inside general liability as the products-completed operations hazard, with its own aggregate limit. Some manufacturers carry a separate product liability policy instead.
- On an occurrence policy, the date of injury usually decides which policy responds, so products the seller sold years ago can become claims under your policy. Whether you are legally liable for them is a separate question for your attorney.
- If you resell other companies' products, ask each supplier for a vendors endorsement that names your entity, and read its limitations on repackaging, relabeling and changes to the product.
- Importers can be treated like manufacturers, and a foreign maker may be hard to reach, so check how imports are described on your policy.
- Recall costs are excluded from the standard general liability form and need separate product recall coverage.
Where does product liability sit in the policies you inherited?
Product liability means claims that something the business made or sold injured someone or damaged their property. In most small businesses it is part of commercial general liability, under what the standard Insurance Services Office (ISO) form calls the products-completed operations hazard: injury or damage that happens away from your premises and arises from your product or your finished work. That hazard has its own aggregate limit, separate from the general aggregate. See products-completed operations aggregate.
Some higher-hazard manufacturers carry a standalone product liability policy instead. A few of those are written on a claims-made basis, where the policy in force when the claim is made responds, subject to a retroactive date (the earliest date of injury the policy will cover). If your inherited policy is claims-made, the retroactive date matters as much as the limit.
Check the declarations for a products-completed operations aggregate and the form title for occurrence or claims-made; the full checklist is at the end.
One limit worth understanding early: general liability pays for injury or damage to others, not for the cost of fixing or replacing your own defective product. The standard form excludes damage to your product itself.
Who covers products the seller sold before closing?
On an occurrence policy, the policy in force when the injury or damage happens responds, whenever the product was sold. A heater the seller shipped three years before closing that starts a fire next year is mostly a question for next year's policy: yours.
The standard ISO general liability form anticipates this. Its definition of "your product" includes goods made, sold, handled or distributed by a person or organization whose business or assets you have acquired. So the standard form treats the seller's products as your products for the products hazard. Carrier forms can differ, and some policies add exclusions for discontinued products or for products of predecessors, so check the forms schedule.
Insurance and legal liability are separate questions. In a stock purchase, the company you bought is generally the same legal entity and remains responsible for products it sold, subject to any indemnities in the purchase agreement. In an asset purchase, the general rule is that a buyer does not take on the seller's liabilities, but there are exceptions, and in a minority of states courts have applied a "product line" theory to make a buyer that continues the same product line answer for the seller's products. That is a question for your deal counsel, not your broker. See successor liability in an asset purchase and stock deal vs asset deal.
| Situation | Policy that may respond (occurrence form) | What to check |
|---|---|---|
| Seller sold it, injury happened before closing | The policy in force at the time of injury, usually the seller's or the acquired company's | Deal structure and whether those old policies are still accessible |
| Seller sold it, injury happens after closing | Your policy in force at the time of injury | That the carrier knew about the seller's product lines when it underwrote you |
| You sold it after closing | Your policy | Limits, classification and vendor terms |
| Claims-made product policy | The policy in force when the claim is made | Is the retroactive date early enough to reach injuries that may already have happened? Does a prior products exclusion remove goods made or sold before a set date? |
The practical step: give your carrier the full list of products the seller made or sold over the past several years, including discontinued lines, and ask for written confirmation that your policy treats them as your products.
Does your supplier's insurance protect you as a distributor?
When a product injures someone, the injured person often sues everyone in the chain: the manufacturer, the importer, the distributor and the retailer. A distributor that did nothing but move a sealed box can still have to defend itself. The usual protection is a vendors endorsement on the manufacturer's general liability policy, which adds you as an additional insured for claims arising from that manufacturer's products.
After an acquisition, check each major supplier's endorsement for these points:
- Who it names: a scheduled endorsement may still list the seller's entity, which does not help your new company after an asset purchase. A blanket endorsement may cover any vendor the manufacturer agreed in writing to cover, so your entity needs that written agreement.
- What it leaves out: vendors endorsements commonly exclude claims where the vendor repackaged, relabeled or changed the product, made warranties the manufacturer did not authorize, or installed or serviced it. If your business assembles kits, puts its own label on goods or installs what it sells, some claims may fall outside.
- How much it gives you: under current standard ISO wording, vendors coverage is usually no broader than your written agreement with the supplier requires, and the limit available to you is the lesser of what the agreement requires and the supplier's policy limit. Ask for agreements that require adequate limits.
- How strong the manufacturer's coverage is: limits, carrier and whether the manufacturer's policy is in force. Ask for a copy of the endorsement, not just a certificate.
- The contract behind it: a supply agreement in which the manufacturer agrees to defend and indemnify you. See indemnity.
If you are the manufacturer, your own resellers will ask for vendors coverage on your policy. See additional insured endorsements explained.
What changes when the products are imported?
Imports raise the stakes for a distributor. Under the federal Consumer Product Safety Act, the definition of "manufacturer" includes anyone who imports a consumer product, so an importer carries manufacturer duties for those goods. In liability claims, a foreign maker may have no United States insurance or may be hard to bring into a United States court, which leaves the importer or distributor as the most reachable defendant.
For a new owner, that means three checks:
- Is importing described on your policy? Underwriters rate an importer differently from a distributor of domestic goods. If the seller started importing a product line and never told the carrier, the classification may not fit.
- Do any endorsements restrict foreign products? Some carriers limit or exclude products made outside certain countries, or require proof that foreign suppliers carry their own coverage.
- Can you collect on the supplier's promise? An indemnity from a foreign supplier is only as good as your ability to enforce it. Ask whether the supplier carries United States product liability coverage that names you.
Private label goods deserve the same scrutiny. If your name is on the box, you may be treated as the maker in many situations. Ask your attorney how that applies to your product lines.
Is product recall covered?
Usually not by general liability. The standard ISO form excludes the cost of recalling, withdrawing, inspecting, repairing or replacing your product when it is pulled from the market because of a known or suspected defect. That cost (notices, shipping, destruction, replacement stock, extra labor) falls on the business unless it carries separate product recall insurance or, in food businesses, contaminated products insurance, a related coverage that can also respond to accidental contamination and tampering. Recall policies vary widely in what they pay. For a leveraged buyer, a recall is a cash event: pulled inventory, refunds and replacement shipping come out of cash flow in the same months your debt service is due.
A recall can also start with a legal duty. The U.S. Consumer Product Safety Commission (CPSC) says manufacturers, importers, distributors and retailers of consumer products must report within 24 hours of obtaining reportable information about certain defects or hazards. Food, drug and vehicle regulators have their own rules. Ask whether the seller had a written recall plan.
Recall is a frequent gap for light manufacturers and food producers. See the light manufacturer checklist for where recall sits among the other coverages a manufacturer needs.
Do your retailer and customer contracts require more than you carry?
Large retailers and industrial customers often attach insurance requirements to their vendor agreements: a minimum per occurrence and products limit, vendors coverage naming them, primary and noncontributory wording, notice of cancellation and sometimes a minimum carrier rating. After an asset purchase the customer may ask your new entity to sign again, so read each agreement against your policy. How to check customer contracts against your policies walks through it, and contracts that require coverage you do not have covers what to do when they do not match.
A hypothetical example. A buyer acquires a distributor of kitchen products through an asset purchase into a new limited liability company. The seller's policy carries a $1 million per occurrence limit and a $2 million products aggregate, with a $2 million umbrella. The largest retail customer's vendor agreement requires $5 million in total products limits and vendors coverage naming the retailer. The review also finds that a line of imported cookware was never described to the carrier, that the main domestic supplier's vendors endorsement still names the seller, and that there is no recall coverage. The buyer asks the broker to disclose the import line, quote a higher umbrella and recall coverage, and asks the supplier to add the new entity. After underwriting, the carrier offers the higher umbrella at a higher premium; the buyer budgets for it, and the new limit applies only once the carrier binds it.
What belongs on your product liability checklist?
| Item | Where to find it | Red flag |
|---|---|---|
| Named insured | Declarations page | Seller's entity still named, or your new entity missing |
| Products limits | Declarations and umbrella schedule | Below retailer or customer requirements |
| Trigger and retroactive date | Form title and declarations | Claims-made with a recent retroactive date, or a prior products exclusion tied to a sale or manufacture date |
| Product lines described | Classification and application | Imports, private label or discontinued lines left out |
| Predecessor and discontinued products | Forms schedule | Exclusions for products of a business you acquired |
| Vendors endorsements from suppliers | Supplier certificates and endorsement copies | Seller named instead of you, or exclusions for things you do (relabeling, repackaging, assembling or installing) |
| Recall | Separate recall policy, if any | None, for a business with real recall exposure |
| Loss history | Loss runs for five years | Product claims, even small ones, that point to a pattern |
For industry detail, see product liability for manufacturers, product liability for wholesalers and distributors and the specialty distributor checklist. If it helps, Morrow can review the product coverage you inherited against your contracts and product lines and request quotes where it makes sense; any new terms depend on carrier underwriting.
Keep reading
- New Owner Review: General Liability
- Successor Liability: When an Asset Purchase Is Not Clean
- Stock Deal vs Asset Deal: Whose Insurance Responds to Old Claims?
- Just Bought a Specialty Distributor? Your Insurance Review Checklist
- Just Bought a Light Manufacturer? Your Insurance Review Checklist
- All guides for new business owners
Frequently asked questions
Does my general liability policy cover products the seller sold before I bought the company?
It may. On an occurrence policy, the policy in force when the injury happens usually responds, and the standard form treats products of a business you acquired as your products. Carrier forms vary, so get written confirmation. Legal liability is a question for your attorney.
Do I need a separate product liability policy?
Often not. Most small manufacturers and distributors get product liability through the products-completed operations part of general liability. Higher-hazard manufacturers sometimes carry a separate policy or a larger umbrella.
My supplier says its insurance covers us. How do I check?
Ask for a copy of the vendors endorsement on the supplier's general liability policy, not just a certificate. Confirm it names your company, or that a blanket version applies because you have a written agreement, and read its exclusions for repackaging, relabeling or changing the product.
Is product recall covered by general liability?
Usually not. The standard general liability form excludes the cost of recalling or withdrawing your own product. Recall costs need separate product recall coverage, and those policies vary in what they pay.
We import most of what we sell. Does that change our product liability risk?
It can. For consumer products, the federal Consumer Product Safety Act includes importers in its definition of manufacturer, and if the foreign maker cannot be reached, the importer or distributor may be the main target of a claim. Other product types have their own regulators.
Our biggest retailer wants higher products limits than we carry. What are our options?
Often a larger umbrella over the general liability policy, after confirming the umbrella sits over products coverage. Also check the retailer's other terms, such as vendors coverage and primary wording. Any increase depends on carrier underwriting and applies only once the carrier binds it.
References
- Insurance Services Office: Commercial General Liability Coverage Form CG 00 01 12 07 (carrier-hosted copy)
- IRMI: Vendors endorsement definition
- U.S. Consumer Product Safety Commission: Duty to Report to the CPSC, Your Rights and Responsibilities
- Cornell Legal Information Institute: 15 U.S. Code 2052, Definitions (Consumer Product Safety Act)
- Butler Snow: Product Line Exception to Successor Non-Liability (2018)
Just bought a business? Get your insurance reviewed.
Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.
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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.