What is 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. Intercompany products suits exclusions are most commonly found in insurance policies purchased by companies with large operations, especially operations in which subsidiaries buy and sell goods and services to other subsidiaries.
BREAKING DOWN Intercompany Products Suits Exclusion
Intercompany products suits exclusions are most frequently attached to commercial policies, such as general liability and commercial umbrella policies. Commercial liability policies typically treat each insured and named insureds as if they each had their own policy.
Intercompany products suits exclusions are used to prevent an insurer from being responsible for cross liability, which deals with whether parties named in an insurance policy can sue each other. Cross liability refers to the liability of one insured party in an insurance contract to another party on the same contract.
For example, an automobile manufacturer may have subsidiaries that assemble automobiles as well as subsidiaries that create the parts that are used in the vehicle assembly. The subsidiary responsible for producing the bumpers used on the vehicle sends a shipment of poor quality items to the assembly plant, though this is only discovered several months after the vehicles are shipped to market. Both the subsidiaries are listed on the commercial policy, and the assembly plant sues the component plant for the cost of the recall. The separation of insureds clause treats both subsidiaries as if they had their own policy. Unless there is an intercompany products suits exclusion the insurer would be responsible for the claims.
Intercompany products suits exclusions and other cross-liability endorsements are unnecessary when a commercial general liability policy has a severability of interest provision. If two unrelated companies are both included in the same policy, which can occur if a business contract requires a contractor to be named as an additional insured, the named insured will want the subcontractor to still be responsible for any liability it may have to the named insured.
Example Contract Clause of Intercompany Products Suits Exclusion
"This insurance does not apply to any claim for damages by any Named Insured against another Named Insured because of 'bodily injury' or 'property damage' arising directly or indirectly out of 'your products' and included within the 'products-completed operations hazard.'"
Example of an Intercompany Suit
Intercompany suits between insureds often involve an additional insured that has sued a named insured. For example, suppose that a property owner named Austin Properties hires Adam's Painting to paint an office building Austin Properties owns. A contract between Austin Properties and Adam's Painting requires Adam's to cover Austin Properties as an additional insured under Adam's liability policy.
When Adam's begins work on the project, one of Adam's employees sustains a head injury on the job and files a claim under Adam's Painting's workers compensation policy. After collecting workers compensation benefits, the employee files a lawsuit against Austin Properties. His suit claims that the window frame was not attached to the building. Austin Properties was aware of this fact before the accident but failed to warn Jeff of the danger.
Austin Properties responds by filing a lawsuit against Adam's Painting. Austin says that it informed Adam's Painting about the loose window frame Adam's Painting was negligent in failing to notify the employee of the danger so Adam's is responsible for the injury.