Insurance Coverage Considerations For Auto Part Manufacturing

The Canadian manufacturing industry is booming, with more and more companies coming on board monthly. As an auto manufacturer, you are responsible for protecting your company, employees, and customers from injuries and financial losses related to faulty products. The best way to do this is with Commercial General Liability (CGL) insurance.


What Is Covered?

Auto parts manufacturing insurance, also known as CGL, covers third-party claims, lawsuits, and injuries caused by products and business operations. CGL kicks in when it is determined that a manufacturer is responsible for injuries and property damage caused by its products. 

When manufacturers are determined to be liable for non-professional negligent acts, they will be required to pay-out-of-pocket if they are not covered under a CGL insurance policy. Other things covered under a manufacturing insurance policy includes:

  • Medical expenses
  • Legal expenses
  • Punitive damage
  • Compensatory damage
  • Damages caused by misleading advertisement
  • Property damage

Non-Professional Negligent Claims

In Canada, consumers have the right to seek compensation for damage and injuries caused by the negligence of a manufacturer. Manufacturers are not professionals like doctors, optometrists, nurses, and oncologists but they are still responsible for their products, advertising campaigns, and operational processes. 

Negligent claims and lawsuits arising from accidents that cause property damage, financial loss, and injury. These claims are grounded on the basis that the manufacturer was careless but it was not intentional. An example of negligence is when a manufacturer develops a product with a design flaw that leads to an injury or property damage of a third person. It was not the manufacturer’s intention to develop such a product, so the claim will be filed under negligence.

The slightest mistake during the manufacturing process can lead to a major accident. And, more often than not, the consumer is the victim. However, there are cases that involve workers who have sustained injuries when working with faulty equipment and machinery.

Insurance Coverage For Tools, Equipment, And Machinery

It is recommended for all auto parts manufacturers operating within the Canadian border to obtain and carry CGL. To product auto parts, manufacturers rely on several types of equipment, hand tools, and machinery, as well as the special skills of employees. Routine maintenance is key to ensuring the safety of your employees and productivity. When the equipment malfunctions, it can lead to an injury of an employee. 

Many manufacturers operate 24 hours a day, seven days a week. There is no room for error. Unfortunately, it is impossible for manufacturers to prevent all errors caused by equipment. Even if the malfunction does not cause an immediate injury, it could cause a flaw in the design of your products. And, if the design flaw is so minor, the products will find their way to the consumer, who will be at risk of an injury or property damage.

To protect your company from financial loss caused by third-party claims and lawsuits in these cases, you need to cover your equipment, hand tools, and machinery by requesting an extension to your basic CGL policy. 

Commercial Property Insurance Coverage

All auto parts manufacturers operating in Canada are required to obtain and carry commercial property insurance. This coverage can be added to your basic CGL policy. In the event one or more of your employees are injured or dies during a fire in one of your plants, your company will be held responsible. If you are covered under a CGL policy with a commercial property insurance extension, you may not be required to pay anything out-of-pocket. If not, you may end up needing to sell your company to cover the costs of the damage.

Design Molds And Patterns

Auto parts manufacturers rely on design molds and patterns to develop a broad range of products. Manufacturers purchase these products from third-party vendors. But, if they fail to work properly and the error is not caught during the production phase, the parts will be installed in new makes and models in the assembly line. Even though these vehicles may pass extensive inspections, they may lead to an accident or collision after they are purchased. This will lead to one or more third-party claims and/or lawsuits. Unfortunately, your company will be the one that the attorneys go after.

To protect your company from financial loss due to faulty auto parts you developed utilizing faulty design molds and patterns, you need to have these items covered under an extension with your CGL policy. This type of policy will cover the cost of the damaged molds and patterns while the CGL policy will cover the third-party injuries and property damage.

Auto Parts Recall

There comes a time when every auto parts manufacturers have to make the decision to execute a recall on defective products. A recall can lead to thousands if not millions of dollars in losses to the manufacturer because production is suspended and the defective auto parts must be replaced. To ease the burden of these expenses, you need to obtain Product Recall Expense coverage. This policy will cover some or all of the expenses related to the recall of defective auto parts. 

To cover the loss of income up to $50,000 caused by the suspended production, Manufacturers and Wholesalers Product Impairment coverage must be in place at the time of the recall. 

Cyber Risk Insurance Coverage

All auto parts manufacturers rely on specialized computer systems to store important data, run specific operations, and keep track of inventory. Computer systems connected to the Internet are at a high risk of a security breach, which could lead to thousands or millions of dollars in damages to your company and clients. There is also the risk of a virus altering the computer system, leading to a widespread malfunction. In these cases, your employees and clients will not have access to the data needed to manage inventory and data. And, if data is lost due to the virus, the cost of the damages will continue to escalate. 

The solution is Cyber Risk insurance, which covers damages caused by computer viruses. This policy also covers security and privacy breaches and Internet media liability. Some insurers offer Data Risk Management consultation at no additional cost to auto parts manufacturers.


Customize Your Policy To Fit Your Risk Exposures

Regardless of what type of products the manufacturer produces, there are risks involved. As mentioned above, a tiny mishap can lead to serious injuries, death, and property damage. All of which the manufacturer is responsible for if deemed liable in the court of law. 

While it is your responsibility to develop policies and safety practices to decrease to keep the risk exposures to a minimum, an accident can still occur at the drop of a hat. But, one thing is guaranteed if you obtain and carry a customized CGL policy that covers all of your risk exposures when an accident does occur, you will be protected in more ways than one.

Here at Professionalscoverage, we strive to help auto parts manufacturers protect their best interests with a customized CGL policy. Whether you have questions or are ready to start building an insurance policy for your company, we are here to assist. One of our many agents will work one-on-one with you to create a CGL policy that matches your risk exposures.


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