Manufacturers and distributors often purchase general liability policies for the selling and distribution of their goods. In addition, they may purchase what is called a vendor’s endorsement to provide coverage for product liability beyond what is held by the vendor of the product.
Having a vendor’s insurance policy provides additional confidence for the vendor of the manufactured and distributed product because a vendor’s endorsement precludes product liability claims against the vendor from driving up insurance premiums of the general insurance policy.
For instance, it is common for vendors to require as a prerequisite that the manufacturer or distributor purchase a vendor’s endorsement of an amount of $3 million.
In deciding to obtain a vendor’s endorsement policy, the manufacturer or distributor has two options. The first option is to cover all vendors doing business with the manufacturer and distributor for a total not to exceed 7.5% of the General Insurance Policy. The second option is to cover individual vendors for $100 to $250.
A vendor’s endorsement policy has its limitations and include the following:
- Only listed products are covered.
- An individual vendor can exhaust the aggregate limit for all other vendors.
- The vendor’s endorsement can lapse if the policy holder allows premium payments to lapse.
- Express warranties are not covered unless otherwise noted in the insurance policy provisions.
- Intentional physical or chemical changes void coverage.
- Vendor negligence causing bodily injury or property damages generally is not covered.
A business lawyer can help you determine if it is advantageous for you to purchase a vendor’s endorsement policy. Based on the industry that one’s business operates in, a qualified legal professional specializing in insurance policies can determine the boundary of coverage recommended for your particular business product.