GENERAL COMMERCIAL LIABILITY AND PRODUCT LIABILITY
SMART PLANNING PAYS OFF
A liability policy protects the business owner, management, and all employees from the financial consequences of these claims by reviewing them, rejecting the unfair ones, and paying out the valid ones up to the policy limit.
Real-World Claim Examples
Carelessness While unloading building materials at a construction site, a crane operator accidentally severely injures a pedestrian. The injured person claims medical expenses, pain and suffering, and lost wages.
Installation Error An electrician wired a client’s office. Sometime later, a short circuit caused a fire that completely destroyed the office space. Fire investigators clearly traced the cause back to the electrician, and his insurance had to cover the damages.
Safety Obligations An elderly woman visited a shoe store early in the morning. The cleaner had just finished mopping, and the woman slipped on the slick marble floor, breaking her hip. The insurance covered her weeks in the hospital and the follow-up treatments for her permanent injury.
Manufacturing Defect In a large bakery, tiny metal parts break off a machine into the dough. A trainee doesn’t notice, and the contaminated bread ends up in stores. Customers demand compensation after suffering from stomach aches. The insurance steps in to pay the valid claims.
Who Needs This Insurance?
This insurance is meant for all commercial operators, business owners, tradespeople, manufacturers, and retailers.
What Exactly Is Insured?
It covers your legal liability arising from the everyday operations and legal relationships of your insured business. If you have to pay damages, the insurance covers the costs up to your agreed policy limit. Certain specific risks might have their own separate limits.
What Kind of Risks and Damages Are Covered?
General and product liability insurance covers personal injury, property damage, and the resulting financial losses. Pure financial losses related to products are covered under an extended product liability policy, which usually needs to be added separately.
It covers third-party claims for things like:
- Personal injury and property damage because a product lacked promised features.
- Defects in new items created by combining, mixing, or processing your supplied products.
- Wasted costs from trying to process defective items.
- Costs to replace defective products.
- The time and expense of checking and sorting out bad products.
- Defective machinery that was supplied, installed, or maintained.
Some specific professions might need a separate, standalone policy for pure financial losses that pays out even if no physical injury or property damage happened first.
What Is NOT Covered?
Like any insurance, there are exclusions. Usually, it won’t cover:
- Damages you cause to yourself.
- Fulfillment damages (for example, simply failing to do the job right as agreed in a contract; this is just the difference between what was promised and what was actually delivered).
- Damages caused intentionally.
- Risks that are not specific to your business or aren’t assigned to the insured risk (like goods on consignment).
- Pure financial losses (unless specifically added).
Good to Know
Where does the coverage apply?
The insurance covers your workplaces in Germany. If damages originate from your German location, you’re covered throughout Europe. You can request to extend this globally. Additionally, if you make a product in Germany and it ends up abroad without you directly shipping it there (indirect exports), you’re covered. Direct exports outside Europe can be added on request. Special rules also apply to businesses producing for the auto industry.
How do you determine the coverage amount?
Your limit is based on your specific business risks.
What gets paid out in a claim?
- Payouts to settle valid claims.
- Legal costs to fend off unfair claims. In every case, the payout is minus your agreed deductible, which can vary depending on the specific coverage area.
What else should you consider? Every business has different needs. That’s why these policies are built in modules. You can mix and match coverage extensions and special clauses to fit your exact situation.
Recommended Additional Insurances
Management, board members, and executives are personally liable with their private assets for bad decisions. To protect them from financial claims related to their work, getting a D&O (Directors & Officers) insurance is a smart move.
Since July 2010, German law requires a mandatory personal deductible for board members of stock corporations (10%, up to 1.5 times their annual gross salary). A separate D&O deductible policy is recommended to cover this gap.
Furthermore, companies can add an EPLI policy (Employment Practices Liability Insurance / AGG-Versicherung) to protect against discrimination claims arising from the workplace or everyday business.
