Efficacy Exclusions

Efficacy Exclusions

Efficacy is defined as the capacity for producing a desired result or effect.

Efficacy is an exclusion applied to Public Liability insurance policies in respect of failure of a product to perform its intended function. The policy is there to cover injury or property damage caused by the product, not if it has failed to deliver the results. Products Liability is not intended to be a “Manufacturers Guarantee”

This exclusion is usually applied to policies covering liability arising from products where their failure to perform is considered too a high risk for the insurer to provide cover, typically these are safety or security related products.

There have been a number of recent Court cases, the most well known at present is “the Selected Seeds Saga” which had a fairly recent decision in the High Court. Now QBE lost this case in the High Court but this was over an interpretation of how their exclusion was worded and you can bet they are sensitive to this issue now. If you want a summary of this, read more here.

The court’s decision is a useful reminder of the scope of product liability cover. Product liability policies are normally intended to cover negligence caused to third parties for personal injury or property damage, but not contractual liabilities, such as a warranty that a product will perform. Where the key risk of a product is non-performance, such as failure to prevent injury or damage, it is highly advisable to check how the policy provides efficacy cover for its intention should still to be able to cover injury or property damage caused to another party.

However, it may be important to look at the nature of the product you are talking about insuring. Is it adequate for the job it is intended to do? If it is not, why try to hide behind an Insurance Policy? If it damages the seeds delivered yes the exclusion should cater for that. If the seeds just do not get delivered by the machine – is it a design fault? If they have designed and manufactured the machine, then why should an insurance policy respond like a warranty or guarantee on a product? If they built the machine based on an external or other independent party’s design, then they can take action against the designer.