Intercompany Products Suits Exclusions: Definition, How It Works, and Examples
BP
Summary:
Intercompany products suits exclusions are insurance policy endorsements that exclude coverage for claims made by one named insured against another named insured. They are commonly found in policies of large companies with subsidiaries engaged in buying and selling goods and services to other subsidiaries. Understanding these exclusions is crucial for businesses to navigate insurance coverage effectively.
An intercompany products suits exclusion is a specialized clause within an insurance policy that denies coverage for claims brought by one named insured against another named insured within the same policy. It’s a critical aspect of insurance policies, especially for companies with complex organizational structures involving multiple subsidiaries.
What is an intercompany products suits exclusion?
An intercompany products suits exclusion is an insurance policy endorsement that excludes coverage for claims made by one named insured against another named insured. This exclusion typically appears in insurance policies purchased by companies with extensive operations, particularly those involving subsidiaries that engage in the buying and selling of goods and services among themselves.
Key characteristics of intercompany products suits exclusions
Intercompany products suits exclusions serve to protect insurance companies from being liable for claims between different entities covered under the same policy. These exclusions are commonly found in commercial policies such as general liability and commercial umbrella policies. The primary purpose is to prevent insurers from being responsible for cross liability, which involves situations where parties named in an insurance policy sue each other.
Example scenario
Consider an automobile manufacturer with subsidiaries responsible for both assembling vehicles and manufacturing component parts. If a subsidiary supplies defective parts to the assembly plant, leading to costly recalls or damages, the assembly plant may sue the component plant for compensation. In such cases, both subsidiaries are listed as named insureds on the commercial policy.
The separation of insurance clauses treats each subsidiary as if they had their own policy. Without an intercompany products suits exclusion, the insurer would be liable for the claims arising from the dispute between the two subsidiaries.
When intercompany products suits exclusions are necessary
Intercompany products suits exclusions become necessary when a commercial general liability policy lacks a severability of interest provision. This provision ensures that each named insured is treated as if they have their own policy, thus avoiding cross liability issues.
However, in cases where unrelated companies are included in the same policy, such as when a business contract requires a contractor to be named as an additional insured, intercompany products suits exclusions may be essential to clarify liability responsibilities.
Examples of intercompany products suits exclusions
Here are additional scenarios illustrating how intercompany products suits exclusions function in insurance policies:
Example 1: construction project liability
Imagine a construction company with multiple subcontractors working on a large project. One subcontractor supplies faulty materials that lead to structural issues in the building. The general contractor, also named as a named insured in the policy, files a claim against the subcontractor for damages. In this case, the intercompany products suits exclusion would prevent coverage for the claim, as it involves one named insured suing another within the same policy.
Example 2: manufacturing defects
A manufacturing company has several divisions responsible for producing different components of a final product. If one division’s defective component causes harm or property damage, another division may be held liable. However, due to the intercompany products suits exclusion, the insurance policy would not cover the claim, as it involves entities covered under the same policy suing each other.
Understanding the legal implications
It’s essential for businesses to grasp the legal implications of intercompany products suits exclusions to effectively manage risk and ensure adequate insurance coverage.
Contractual considerations
Business contracts often require additional insured endorsements to protect parties involved in transactions. Understanding how intercompany products suits exclusions interact with these contractual obligations is crucial for businesses to mitigate potential liabilities.
Litigation strategies
In the event of disputes between named insureds covered under the same policy, litigation strategies may need to account for the presence of intercompany products suits exclusions. Legal teams must carefully navigate these exclusions to protect their clients’ interests and minimize financial exposure.
Conclusion
Intercompany products suits exclusions play a significant role in insurance policies for companies with complex organizational structures. By excluding coverage for claims between named insureds, these endorsements help insurers manage risk effectively. Businesses should carefully review their insurance policies to ensure they understand and account for intercompany products suits exclusions in their risk management strategies.
Frequently asked questions
What types of insurance policies commonly include intercompany products suits exclusions?
Intercompany products suits exclusions are most frequently found in commercial policies such as general liability and commercial umbrella policies.
Do intercompany products suits exclusions apply to all claims between named insureds?
Yes, intercompany products suits exclusions typically exclude coverage for claims made by one named insured against another named insured within the same policy.
Are there any alternatives to intercompany products suits exclusions for managing liability between named insureds?
Yes, commercial general liability policies may include a severability of interest provision, which treats each named insured as if they have their own policy, thus avoiding cross liability issues.
How can businesses determine if their insurance policy includes an intercompany products suits exclusion?
Businesses should carefully review their insurance policy documents and consult with their insurance agent or broker to identify any exclusions, including intercompany products suits exclusions.
Can intercompany products suits exclusions be customized or negotiated in insurance policies?
Yes, insurers may offer customization options for insurance policies, including the inclusion or modification of intercompany products suits exclusions, depending on the specific needs and risk profile of the insured business.
Key takeaways
- Intercompany products suits exclusions exclude coverage for claims made by one named insured against another named insured within the same policy.
- These exclusions are commonly found in insurance policies of companies with extensive operations and multiple subsidiaries.
- Understanding intercompany products suits exclusions is essential for effective risk management and insurance coverage.
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