During the investigation, the CPSC issued an administrative subpoena to require the company to disclose the name of the deceased child and the family's contact information so the CPSC could continue its investigation as to what exactly happened in the accident. The CPSC was requesting that Peloton recall the treadmill for safety reasons; the company's position is that the product is safe and should not be recalled. The CPSC was concerned about reports of victims being pulled under the machines and suffering broken bones, head trauma and other injuries. Such injuries are not typically seen with other brands of treadmills.

As of May 5th, a product recall has been issued for 125,000 units of the Tread+ because of the risk of adult users, children, pets and objects being pulled under the machine and injured. The recall notice states that Peloton has received seventy-two reports of adults, children, pets or objects being pulled under the rear of the treadmill. There are twenty-nine reports of injuries to children such as second-and third-degree abrasions, broken bones and lacerations.

There are a number of insurance issues here; liability for injuries caused by Peloton's product, as well as the recall of the machines. What coverages are available in such situations?

Damage to Your Product Exclusion

In the standard ISO CGL Coverage Form, exclusion k. pertains to property damage to the named insured's product arising out of it or any part of it. Exclusion l. pertains to property damage to the named insured's work arising out of it or any part of it and included in the products-completed operations hazard. Exclusion l. does not apply however if the damaged work or the work out of which the damage arises was performed on the named insured's behalf by a subcontractor.

The aim of this exclusion is, simply, to prevent insurance coverage under the CGL form for damage to the named insured's own products. It may seem strange that an insurance policy that provides liability insurance to insureds needs such an exclusion since no one can be liable to himself. Nevertheless, the reason for the exclusion stems mainly from the definition of "your product". The definition does not apply to real property; rather it is stated to include goods or products manufactured, sold, handled, distributed, or disposed of by a "person or organization whose business or assets you have acquired".

The definition of "your product" also includes the providing of or failure to provide warnings or instructions. This is to make clear that coverage for claims arising out of the failure to provide adequate warnings or instructions concerning a product should be handled under the products-completed operations hazard.

Product Recall

The standard ISO CGL Coverage Form also does not provide coverage for product recall, as described under exclusion n. Recall Of Products, Work Or Impaired Property. However, ISO does offer a Product Withdrawal Coverage Form, CG 00 66 04 13, discussed here. It is noted however that certain exclusions apply, one of which is the exclusion for breach of warranty and failure to conform to intended purpose. If the insured's product is withdrawn from the market just because it fails to accomplish its intended purpose, the expenses for the withdrawal are not covered. However, there is an exception within the exclusion for bodily injury or physical damage that the product may cause.

An exclusion f. also exists for Known Defect in the product, if the defect was known by the insured prior to the date when the Product Withdrawal Coverage Part was first issued; or prior to the time the product left the insured's control or possession. The known defect exclusion is simple: if the named insured puts a product that it knows is defective out in the market, this policy will not pay expenses for the withdrawal of that defective product.

Products Liability

Products liability refers to the liability of parties along the chain of manufacture of any product, for damage caused by that product. If a product injures a person or causes property damages due to negligence on the part of a manufacturer, they may be found liable and forced to pay damages. This includes the manufacturer of component parts, assembler, wholesaler, and retail store owner.

Defects in the product, packaging, or lack of clear instructions can be covered. In order for products liability insurance to respond to a claim a few things must be present. There must be bodily injury or property damage, allegedly caused by a product that the insured company has manufactured and placed into the stream of commerce. The injury or damage must occur in the coverage territory, and must take place during the policy period. Typically, products liability is obtained through a general liability policy, but insureds should be aware that not all general liability policies include products liability exposure coverage. Under the standard GL policy the injury or damage must result from an "occurrence", which is an accident including repeated or continuous exposure to the same harmful conditions. Once the product enters the consumer stream, injury or damage that results from the product would fall under the "products-completed operations hazard", which is injury or damage arising out of "your product" or "your work".

Most product liability policies provide coverage for injury or damage caused by the sale or supply of the insured's products, solely in the course of business and during the policy period. As is typical of most liability coverage, the insured must be legally liable. However, strict liability can be covered as well, depending on the policy and the product. Some products are dangerous enough that even if the manufacturer did nothing wrong they can be held strictly liable for any injuries resulting from the use of the product.

There are several things a consumer should be aware of when choosing a products liability policy, because the coverage that is provided in the end is determined by the specifics of the policy from the beginning.

Coverage territory generally includes the United States and its territories, possessions, Puerto Rico, and Canada, and extends to airspace and international waters only when travelling to and from any of the above destinations. Coverage territory mostly becomes an issue when consumers take a product out of the country and injury or property damage occurs there. In order for an insured to ensure coverage they should make sure the product is made and sold in the United States.

The policy period is the period of time between when the coverage begins and ends. Standard liability covers only injuries that the insured comes to know about within the policy period, and if that issue is exacerbated after the insured switches carriers, since the injury occurred under the original policy, the original insurer must respond to that later claim, despite the expiration of the policy period.

Another thing to consider is whether the insurer will indemnify or pay on behalf of the insured in a products liability incident. Normally, products liability insurance policies specify that they will pay on behalf of the insured. Manufacturers should be aware if their policy indemnifies for losses though, instead of paying on behalf, as that may have adverse impacts on the manufacturer.

In a products liability case if there is a product recall, those costs will not be covered by products liability insurance. Product recall insurance is often offered separately, and can unexpectedly become necessary for the survival of a business.

Defense of the insured if suit is filed is extremely important; a 2012 study showed that the average jury award for products liability suits was $3,439,035.00. The cost to provide expert witnesses and the evaluation of thousands of company documents can easily amount to $100,000 or more.

Allocation of Loss

Loss can be allocated in several ways if there are multiple triggered policies for any one given claim. Some jurisdictions allow an insured to select a policy that has been triggered to fully defend and indemnify a given claim based on language found in some historical policies requiring an insurer to pay "all sums" on behalf of the insured. This allows the insured to choose the most favorable policy. Other jurisdictions spread the cost of defense and indemnity across all triggered policies, which is called a pro-rata approach. Some policies contain asbestos exclusions in their coverage, which could potentially pose a problem if the asbestos that is known to have existed in some forms of talc is somehow causing ovarian cancer in patients. In a case like this, the insured should be very aware of whether their losses are pro-rata or all sums, and how that affects which insurer will pay what sum.