DEFINITION of 'Batch Clause'

A policy provision of product liability insurance that limits coverage to claims stemming from defective products from a specific production cycle. A batch clause thus only covers items produced during a specific production run over a specific time period, referred to as a “batch”.

BREAKING DOWN 'Batch Clause'

Professional liability policies may have a batch clause that limits the amount of deductible that can apply to an event, such as a defective product, regardless of the number of claims filed for damages caused by that product. This prevents the policyholder from having to consider every claim to be a separate occurrence. This will only be the case if the policy language says that the deductible is on a “per occurrence” basis. If the deductible is on a “per claim” basis then it applies to each claim made, which means that the insured will have to pay more money out of pocket if multiple claims are made.

In some states, laws do not allow multiple claims to be treated as part of the same occurrence. This can lead to the insured ultimately not having coverage depending on how high the deductible is relative to the amount of the claim. Companies may get around this by requesting an annual aggregate deductible, which limits the total amount of deductible that the insured will have to pay during a given time period.

In the event of claims, insurance companies and policyholders may argue over what constitutes a “batch”. This is because the insurer wants to consider a batch to fall under a short time period, which increases the number of periods open to the deductible. In order to prevent litigation over this type of argument, policyholders need to ensure that the language of the policy carefully defines what is considered a batch and what is considered an occurrence.

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