Legal Definitions - own-product exclusion

The own-product exclusion is a standard clause found in many product liability insurance policies. This provision clarifies that the insurance coverage does *not* extend to the cost of repairing, replacing, or recalling the insured company's *own defective product*. Instead, the policy is designed to cover the financial consequences when that defective product causes damage or injury to *other property or individuals*.

Essentially, this exclusion distinguishes between the inherent business risk of a product failing to perform as intended (which is typically borne by the manufacturer) and the liability risk of that product causing harm beyond its own failure. It means the insurance policy won't pay for the product itself to be fixed or replaced, but it will cover the harm that product causes to other things or people.

Here are some examples to illustrate this concept:

• Example 1: Electronics Manufacturer

  Imagine a company that manufactures smart televisions. A batch of these TVs is later found to have a manufacturing defect causing the screen to flicker intermittently after a few months of use. The company's product liability insurance policy, due to the own-product exclusion, would not cover the cost of replacing the faulty televisions themselves or the expenses associated with a product recall to fix the flickering screens. These are considered business costs related to the quality of their own product. However, if a faulty TV were to overheat and cause a fire that damaged the homeowner's wall, furniture, or other electronics, the insurance *would* typically cover those damages to *other property*.

• Example 2: Pharmaceutical Company

  Consider a pharmaceutical company that produces a new over-the-counter pain reliever. After distribution, it's discovered that a batch of pills contains an incorrect dosage due to a production error, making them ineffective but not harmful. The company's product liability insurance, because of the own-product exclusion, would not cover the financial loss from having to discard the incorrectly dosed pills or the costs of withdrawing them from pharmacies. These are costs related to the quality and efficacy of their own product. If, however, the incorrect dosage had caused adverse health effects or injuries to consumers, the insurance *would* cover medical expenses and legal claims from those affected individuals.

• Example 3: Industrial Component Supplier

  A company manufactures specialized bearings used in heavy machinery. A particular batch of these bearings is later found to have a material flaw that causes them to wear out prematurely. The supplier's product liability insurance, due to the own-product exclusion, would not pay for the cost of replacing the defective bearings themselves within the machinery. This is a cost associated with the failure of their manufactured product. If, however, a prematurely failed bearing caused the entire piece of heavy machinery to break down, resulting in significant damage to other expensive components of the machine or causing injury to an operator, the insurance *would* typically cover those damages and injuries.