Legal Definitions - sistership exclusion

The sistership exclusion is a common clause found in product liability insurance policies. It specifies that the insurance policy will not cover the costs associated with inspecting, repairing, replacing, or recalling products that are similar to a product that has already caused damage or been found defective, but which have not themselves yet failed or caused harm. In essence, the insurer covers the damage caused by the defective product that triggered the claim, but not the preventative expenses of dealing with other, potentially defective products from the same batch or design that have not yet caused a loss.

Here are some examples to illustrate this concept:

• Imagine a major automobile manufacturer produces 100,000 vehicles with a newly designed engine component. One of these vehicles experiences a catastrophic engine failure while being driven, leading to an accident and significant property damage. The manufacturer's product liability insurance policy would cover the damages resulting from this specific accident. However, if investigations reveal a design flaw in that engine component, prompting the manufacturer to recall all 100,000 vehicles to replace the potentially faulty part, the sistership exclusion would mean the insurance policy would not cover the enormous cost of recalling and replacing the engine components in the other 99,999 vehicles that had not yet failed or caused an accident.

• Consider a company that manufactures a line of smart home thermostats. One of these thermostats malfunctions, causing a short circuit that leads to a small electrical fire and minor property damage in a customer's home. The insurance policy would cover the costs of repairing this property damage. If a subsequent investigation determines that a specific batch of 50,000 thermostats contains a manufacturing defect that could cause similar short circuits, and the company decides to issue a voluntary recall for all units from that batch, the sistership exclusion would apply. This means the insurer would pay for the damage caused by the *single* faulty thermostat, but would not cover the substantial expenses of the recall, inspection, and replacement of the other 49,999 thermostats that had not yet malfunctioned or caused damage.

• A pharmaceutical company produces 20,000 bottles of a new over-the-counter medication. A customer takes a dose from one bottle and experiences a severe allergic reaction due to an unexpected contaminant. The company's product liability insurance covers the customer's medical expenses and related damages. Further testing reveals that the entire production run of 20,000 bottles contains the same contaminant. The company then initiates a widespread recall to remove all bottles from the market. Under the sistership exclusion, the insurance policy would cover the damages related to the *single* customer's allergic reaction, but it would not cover the significant costs associated with recalling, disposing of, and replacing the remaining 19,999 bottles that had not yet been consumed or caused harm.