I’m regularly asked about product efficacy…. What is it? Why is it being excluded?
Efficacy or inefficacy are not commonly used words, except in scientific or technical references and of course in the insurance industry.
What exactly is efficacy? Well, a search of Google for the definition of efficacy tells us it’s “the ability to produce a desired or intended result”. So, to paraphrase; it is the effectiveness of a product to perform a function it’s intended to do.
Broadly speaking, a general liability policy is triggered by an event causing third party personal injury or property damage, and for which the insured is liable to pay compensation. It is not the intention of general liability policy to guarantee or cover the efficacy of insured’s products.
Products are designed, manufactured, imported, sold or installed for specific purposes. Many types of products do not have any significant exposure to personal injury or property damage arising from their performance or failure to perform.
Inefficacy exclusions are only applied where there is an intention to exclude liabilities arising from the failure of a product to perform its function. An inefficacy exclusion would typically read as follows:
This Policy does not cover liability in respect of Personal Injury or Property Damage arising from the failure of Your Products to cure, alleviate, prevent, eliminate or retard Personal Injury or Property Damage which Your Products are represented, warranted, designed or agreed by You to cure, alleviate, prevent, eliminate or retard.
The exclusion wording can vary between insurers and needs to be read carefully.
Here are some products with their potential exposure, if they fail to perform:
- Fire / Alarm systems – Failure to mitigate property damage or loss
- Medical / Pharmaceutical – Failure to cure or prevent
- Waterproofing – Failure to prevent water leakage/damage
- Safety equipment – Failure to prevent injury
- Chemicals – Failure to perform
- Fertilizers – Failure to yield
In these instances, inefficacy exclusions would be expected to be applied.The exclusion does not apply to claims for personal injury or property damage consequent upon a defect in the manufacture or installation, only from a product (without defect) that fails to perform as intended.I hope you found this helpful, and as always, I’m available to discuss further.
This article was originally published by Solution Underwriting